*Pages 1--64 from Microsoft Word - 16664*
Federal Communications Commission FCC 98- 313
Before the FEDERAL COMMUNICATIONS COMMISSION
Washington, D. C. 20554
In re Applications of ) MM Docket No. 93- 75 )
TRINITY BROADCASTING OF ) File No. BRACT- 911001LY FLORIDA, INC )
) For Renewal of License of )
Station WHFT( TV) on Channel 45, ) Miami, Florida )
) and )
) GLENDALE BROADCASTING ) File No. BPCT- 911227KE
COMPANY ) )
For a Construction Permit for a New ) Commercial TV Station to Operate on )
Channel 45, Miami, Florida )
APPEARANCES
Nathaniel F. Emmons, Howard A. Topel, and Michael E. Lewin, on behalf of Trinity Broadcasting of Florida, Inc. and Trinity Broadcasting Network; Kathryn R. Schmeltzer and
Gregory L. Masters, on behalf of National Minority TV, Inc.; Gene A. Bechtel and John J. Schauble, on behalf of Glendale Broadcasting Company; David Honig, on behalf of The Spanish
American League Against Discrimination; Norman Goldstein, Gary P. Schonman, and James W. Shook, on behalf of the Mass Media Bureau Federal Communications Commission; and Timothy
B. Dyk, Barbara McDowell, and Eric Grant on behalf of Colby May.
DECISION
Adopted: November 24, 1998 ; Released: April 15, 1999
By the Commission: Chairman Kennard and Commissioner Tristani issuing a Joint Statement; Commissioners Furchtgott- Roth and Powell dissenting in part and issuing a Joint Statement.
1
Federal Communications Commission FCC 98- 313
2
TABLE OF CONTENTS
Paragraph
I. INTRODUCTION 1 II. BACKGROUND 2
III. SETTLEMENT AGREEMENT 10 IV. ISSUES REGARDING TBF
A. De Facto Control Background 14
Initial Decision 25 Exceptions and Discussion 35
B. Abuse of Process Initial Decision 75
Exceptions and Replies 77 Discussion 82
V. ISSUES REGARDING GLENDALE Misrepresentation and Lack of Candor
Initial Decision 103 Exceptions and Replies 115
Discussion 117 VI. CONCLUSION 128
VII. ORDERING CLAUSES 129
I. INTRODUCTION
1. In this decision, we affirm the initial decision in this proceeding in part by denying the renewal application of Trinity Broadcasting of Florida, Inc. and reverse the initial decision in
part by denying the mutually exclusive application of Glendale Broadcasting Company. We conclude that the principals of both applicants committed serious misconduct. We also reject a
settlement submitted in this proceeding.
2
Federal Communications Commission FCC 98- 313
3
II. BACKGROUND
2. Trinity Broadcasting of Florida, Inc. (TBF) seeks renewal of its license to operate station WHFT( TV), Channel 45, Miami, Florida, and Glendale Broadcasting Company
(Glendale) has filed a mutually exclusive construction permit application for this facility. In addition to the standard comparative issue, the hearing designation order in this proceeding
specified issues concerning TBF's basic qualifications. Trinity Broadcasting of Florida, Inc., 8 FCC Rcd 2475 (1993). These issues relate to the activities of TBF's "parent," Trinity Christian
Center of Santa Ana, Inc. d/ b/ a Trinity Broadcasting Network (TBN). Because TBF and TBN have common officers and directors, TBN's activities bear on TBF's qualifications.
3. The designated issues concern the relationship between TBN and an entity called National Minority TV, Inc. (NMTV), 1 a licensee of full power and low power (LPTV) television
facilities and television translators. In 1991, NMTV filed an application to acquire station WTGI( TV) in Wilmington, Delaware. A petition to deny filed against the Wilmington
assignment application alleged that NMTV is not, as represented, a minority- controlled corporation, but is instead controlled by TBN. The issues designated in this proceeding inquire
into whether TBN has exercised de facto control over NMTV and whether the principals of TBN and NMTV abused the Commission's processes by using NMTV (1) to evade the Commission's
limitations on multiple ownership, and (2) to improperly claim minority lottery preferences with respect to LPTV applications.
4. Following designation, the presiding Administrative Law Judge (ALJ) added an issue concerning Glendale's basic qualifications. Trinity Broadcasting of Florida, Inc., FCC 93M- 469
(Jul. 15, 1993). This issue involves the activities of Raystay Company (Raystay), which is wholly owned by Glendale's majority stockholder. The issue inquires whether Raystay made
misrepresentations or lacked candor in seeking the extension of several LPTV construction permits.
5. Administrative Law Judge Joseph Chachkin found that TBF was unqualified to be a Commission licensee and granted Glendale's application for a construction permit. Trinity
Broadcasting of Florida, Inc., 10 FCC Rcd 12020 (ALJ 1995). The ALJ found that TBN exercised de facto control over NMTV and abused the Commission's processes by using NMTV
to subvert the Commission's minority ownership policies. 10 FCC Rcd at 12057 ¶ 304, 12060 ¶ 323. According to the ALJ, TBN did so by using NMTV to circumvent the provisions of
73.3555( e)( 1), which limited to 12 the number of television stations that may be commonly
1 NMTV was formerly called Translator TV, Inc. (TTI). In the interest of simplicity, we will
refer to both entities as NMTV, unless we find that the context requires us to differentiate between the two names.
3
Federal Communications Commission FCC 98- 313
4
owned if they are not minority- controlled. 2 (The rule permitted the ownership of 14 stations if at least two were minority- controlled.) Id. at 12061 ¶ 329. The ALJ found that between
February 1987 and December 1991, TBN's president Paul Crouch, by virtue of his being an officer and director of TBN, held cognizable interests in 12 commercial television stations.
During that period, none of TBN's three directors was a minority. On three different occasions --- February, 1987 (the Odessa application), December 1987 (the Portland application), and
March 1991 (the Wilmington application) -- NMTV, which the ALJ deemed Crouch's alter ego, asked the Commission to allow Crouch to acquire an attributable interest in a 13th or 14th full
power commercial television station. The ALJ held that NMTV justified its requests on behalf of Crouch by falsely claiming it was minority controlled, and concealing in each of the
applications the nature and extent of its relationship with TBN. Id. at 12061 ¶ 329. The ALJ also found that TBN used NMTV to claim unwarranted lottery preferences in connection with
LPTV and translator applications. Id. at 12060 ¶ 326.
6. In this regard, the ALJ found that TBN's principals were aware that NMTV was not minority- controlled and that they deliberately concealed material facts regarding NMTV's
control from the Commission. Id. at 12061- 62 ¶¶ 330- 32. The ALJ found that it was not credible that TBN understood the Commission's minority ownership rules to require only de jure
control since it was clear that the Commission never intended to abandon its long- standing practice of considering both de jure and de facto control in determining compliance with the
multiple ownership rules. Id. at 12061 ¶ 328. Further, the ALJ rejected TBN's attempt to mitigate its principals' conduct by arguing that they relied on communications counsel who
advised that NMTV qualified as a minority controlled entity. He found that the blame for the creation of the 'sham' corporation, NMTV, and its subsequent use as a vehicle to abuse the
Commission's processes rested squarely with Crouch. According to the ALJ, NMTV was the brainchild of Crouch to take advantage of the Commission's minority ownership policies and
Crouch admitted that he understood NMTV's entitlement to the minority exception to the 12 station ownership limit was uncertain. In the ALJ's view, instead of putting all of the facts
before the Commission and obtaining a ruling, as he knew he should, Crouch voluntarily chose to hide behind an opinion of counsel that allowed him to do what he intended to do. Id. at 12062
¶ 332. The ALJ concluded that "[ t] he Commission has held that it is an abuse of process to specify a surrogate to apply for a station so as to deny the Commission and the public the
opportunity to review and pass on the qualifications of that party . . . . Crouch's invention of . . . NMTV and his use of that entity to circumvent the Commission's rules and improperly claim
2 Subsequent assignments reduced the number of TBN- related stations to 12. 10 FCC Rcd at
12040 ¶ 136. More recently, Congress, in the Telecommunications Act of 1996, mandated that the Commission eliminate limitations on the number of television stations that can be owned
nationwide, subject to an audience limit that is not exceeded here. Pub. L. 104- 104, 110 Stat. 56 (Feb. 8, 1996), § 202.
4
Federal Communications Commission FCC 98- 313
5
minority preferences coupled with its concealment of the nature and extent of its relationship with TBN manifestly demonstrates abusive intent." Id. at 12060 ¶ 324.
7. The ALJ exonerated Glendale of any misconduct. 10 FCC Rcd at 12062- 63 ¶ 335, 12065 ¶ 349. He rejected allegations that an exhibit accompanying Raystay's two applications
for extensions of time to construct LPTV facilities falsely represented the progress that had been made toward construction of the stations. He found that Raystay forthrightly admitted that
actual construction had not commenced and accurately depicted the preliminary steps that had been taken. Id. at 12063- 63 ¶¶ 338- 48.
8. Now before the Commission 3 are exceptions and reply exceptions. 4 TBF and TBN, jointly, and NMTV filed exceptions to the ALJ's treatment of both TBF's and Glendale's
qualifications. The Mass Media Bureau supports the disqualification of TBF but urges that Glendale should also be disqualified. Glendale supports both aspects of the Initial Decision.
SALAD supports the disqualification of TBF. Additionally, TBF, TBN, NMTV, and SALAD have submitted a Joint Requests for Approval of Settlement Agreement. As described more fully
below, under the terms of the proposed settlement TBF's application for license renewal would be granted and Glendale's application would be dismissed, as would SALAD's petition to deny.
9. We will affirm the Initial Decision in part and reverse it in part. 5 We agree with the
3 These pleadings were originally filed with the Commission's Review Board. Before it ceased
operation, the Board certified this case to the Commission. Trinity Broadcasting of Florida, Inc., 11 FCC Rcd 5255 (Rev. Bd. 1996).
4 In addition to TBF, the Bureau, and Glendale, the hearing designation order made TBN and
NMTV parties, as well as The Spanish American League Against Discrimination (SALAD), which had filed a petition to deny against TBF. 8 FCC Rcd at 2481 ¶ 44. Colby May, an attorney to TBF,
TBN, and NMTV, filed a petition for leave to intervene, to file comments, and to participate in oral argument. See 47 C. F. R. § 1.223( c). May's asserted interest in intervening is that the ALJ and the
Bureau made adverse findings as to his conduct in advising his clients. We have in the past permitted individuals to intervene to defend their reputation where: (1) earlier failure to seek
intervention was occasioned by circumstances beyond petitioner's control; (2) the evidence offered appeared to be of decisional significance; and (3) the decision in the proceeding may have had a
direct bearing on petitioner's reputation and future ability to earn a livelihood in the broadcast industry. See West Jersey Broadcasting Co., 89 FCC 2d 469, 472- 73 ¶ 10 (1980). Here, May's
failure to anticipate adverse findings concerning him does not justify his failure to seek intervention earlier. Moreover, since the hearing has concluded, he can effectively be heard as an amicus. We
have considered his proffered comments as an amicus brief.
5 While the exceptions were pending, TBF filed a Motion to Vacate the Record on
5
Federal Communications Commission FCC 98- 313
6
ALJ that TBN does control NMTV and conclude that there has been deliberate abuse of the Commission's processes. We disagree, however, with the favorable findings made by the ALJ
concerning Raystay's extension applications. We conclude that these documents reflect a lack of candor attributable to Glendale and that Glendale should be disqualified on this basis. Because
we conclude that TBF's application for renewal of license should be denied, we will deny the Joint Requests for Approval of Settlement Agreement, which are premised on a grant of TBF's
application.
III. SETTLEMENT AGREEMENT
10. The settlement agreement submitted in this proceeding contemplates the resolution not only of this proceeding but of four other comparative renewal proceedings involving TBN-related
stations. In MM Docket No. 93- 156, Glendale has challenged the license of a TBN affiliate for station WHSG( TV), Monroe, Georgia. Additionally, Maravillas Broadcasting
Company (Maravillas), an entity in which Glendale's principal George Gardner is also involved, has challenged TBN- affiliated licenses for WTBY( TV), Poughkeepsie, New York, and KTBN-TV,
Santa Ana, California, and NMTV station KNMT( TV), Portland, Oregon. The latter three stations have not yet been designated for hearing. As to the Santa Ana station, another applicant,
Simon T entered into a separate settlement agreement with TBN. That agreement was referred to the Bureau for consideration, since the Santa Ana proceeding has not been designated for
hearing and the settlement was not conditioned on the outcome of this proceeding. Trinity Broadcasting of Florida, Inc., FCC 98I- 38 (Sept. 9, 1998).
11. The settlement calls for the renewal of the various licenses and the dismissal of the Glendale and Maravillas applications. Glendale and Maravillas would receive a total of $55
million in return for the acquisition of their stock by TBN. A related settlement calls for the dismissal of SALAD's petition to deny against TBF. (Settlements submitted in the other
proceedings deal with further petitions to deny.) In return TBN would provide $100,000 to establish two need- based scholarship funds for students of Miami- Dade Community College or
another Florida institution of higher learning. TBN would also pay $143,500 in partial reimbursement of SALAD's legal expenses.
12. The parties contend that approval of the settlement would serve the public interest by
Improvidently Designated Issues, arguing that new information warrants setting aside the designation order in this proceeding. The motion, however, consists mainly of arguments
concerning matters that were considered at the time of designation or that have already been developed in the hearing record in this proceeding and which we have taken into consideration in
reviewing that record. We see no reason to revisit the designation order. We believe that our decision here adequately and appropriately disposes of the questions raised.
6
Federal Communications Commission FCC 98- 313
7
resolving protracted and burdensome litigation and that none of the parties filed their applications for the purpose of settling. They further contend that good cause exists for waiving
the limits on reimbursement contained in the Commission's rules regarding the settlement of comparative renewal proceedings.
13. The Mass Media Bureau opposes the settlement, which is effectively conditioned on the grant of TBF's license renewal application for station WHFT( TV), because the Bureau
believes that TBF is not qualified and that its application should be denied. We agree that the settlement can be approved only if TBF is found qualified to receive such a grant, since the
Commission's policy of encouraging settlements does not extend so far as to justify the approval of a settlement agreement if that would result in the grant of a license to an unqualified applicant.
See Mobiletel, Inc., 107 F. 3d 888, 896 (D. C. Cir. 1997), citing Kannapolis Television Co., 1 FCC Rcd 1037, 1039 ¶ 18 (1986). Accordingly, we now turn to the issue of TBF's
qualifications, as well as those of Glendale.
IV. ISSUES REGARDING TBF
A. De Facto Control Background
14. TBN is a nonprofit, non- stock corporation founded in 1973 by Paul Crouch (Crouch), its president, chief executive officer, and chairman of the board. Under Crouch's
leadership, TBN acquired KTBN- TV, Santa Ana, California, in 1974, and in subsequent years, Crouch formed corporations to acquire other full power television stations. Crouch typically
serves as the president and a director of each licensee -- which Crouch considers as "owned and operated" by TBN. TBN's corporate counsel, Norman Juggert (Juggert), also typically serves as
an officer and director of TBN- affiliated entities. TBN was organized to provide religious programming, and TBN- affiliated stations carry TBN's programming, which TBN offers 24
hours a day, in addition to any local programming. 10 FCC Rcd at 12021 ¶¶ 8- 10.
15. Pearl Jane Duff (Duff), an African- American woman, began her association with TBN in 1979 as a volunteer. Crouch, wishing to integrate minorities into TBN's management,
swiftly promoted Duff, who rose quickly through TBN's ranks. By the end of 1980, Duff served as TBN's public affairs director, vice president, and one of its three directors. In 1981, she
became "assistant to the president," the second highest management office in TBN's hierarchy. 10 FCC Rcd at 12021- 22 ¶¶ 13- 14. Duff testified that her responsibilities involved TBN's legal
affairs, public affairs, and station acquisitions. She indicated that she reviewed all FCC applications and was TBN's day- to- day contact with communications counsel. She was
responsible for all of TBN's translator applications. As of 1993- 1994, TBN had approximately 150 translators and she had prepared and filed 48 applications during the most recent LPTV
7
Federal Communications Commission FCC 98- 313
8
window. She had a wide range of additional duties and was "the primary TBN representative at various industry functions." Id. at 12022 ¶ 14. In addition, Duff had been a salaried employee
of TBN since 1979, but never received a salary or any other form of compensation from NMTV. Id. at 12022 ¶ 15.
16. NMTV, then called TTI, was formed in 1980, shortly after the Commission adopted a notice of proposed rulemaking on September 9 concerning the future of LPTV and translators.
Low Power Television Broadcasting, 82 FCC 2d 47, 75 (1980). The notice proposed giving preferences to minority- controlled applicants in awarding licenses for these facilities. On
September 11, 1980, two days after the NPRM was adopted, Crouch conceived the idea of forming a new corporation to develop a network of translators that would carry TBN
programming. He envisioned TTI as a minority- controlled corporation that would be used to take advantage of the minority preference, while TBN would acquire unbuilt and existing
stations. He chose Duff to join him on the board of directors and enlisted her aid in finding another minority to serve as a third board member. Ultimately Crouch asked Phillip David
Espinoza (Espinoza), a pastor and TBN program host, who is Hispanic, to join him and Duff on the board. (Espinoza resigned in 1990 and was replaced by Phillip Russell Aguilar, a pastor with
previous connections to TBN, who is also Hispanic. In 1991, an African- American, Edward Victor Hill, another pastor with TBN connections, was added as a fourth director. When Aguilar
resigned in 1993, he was replaced by Armando Ramirez, an Hispanic, TBN- related pastor.) Juggert drafted the necessary organizational documents and, on September 16, 1980, TTI was
incorporated. Crouch became president of TTI and Duff vice president. 10 FCC Rcd at 12022- 23 ¶¶ 17- 22, 12036- 38 ¶¶ 112- 15, 119- 20, 124- 25.
17. Between November 6, 1980 and January 6, 1981, TTI filed 17 applications for television translator facilities. Because the Commission later imposed a freeze on the acceptance
and processing of applications, no action was taken on the applications. In 1983, the Commission adopted new rules allowing the use of lotteries to select among certain competing
applications (Random Selection Lotteries, 93 FCC 2d 952 (1983)), and in February 1984, TTI, on the advice of TBN's communications counsel, Colby May (May), certified that it was entitled
to a full minority preference for its applications. Of the original applications, only that for Houston, Texas was granted, and this did not occur until 1988. 10 FCC Rcd at 12024- 26 ¶¶ 25,
35, 39, 43; MMB Exh. 180. During the pendency of TTI's applications, it did not have its own bank account, and, while TBN raised considerable sums of money for building translators, little
was credited to TTI. Inexplicably, despite TTI's lack of active operations, TBN's accounting department charged TTI with intercompany accounts payable, leading to a negative fund balance
of over $200,000. Id. at 12025 ¶¶ 31- 33.
18. Meanwhile, TBN- related telecommunications interests underwent a rapid expansion. By 1984, Crouch, Juggert, and Duff were directors of companies owning seven full power
8
Federal Communications Commission FCC 98- 313
9
television stations, the maximum allowed by the Commission's rules at that time. TBN also entered into agreements for the carriage of its programming on cable systems and other
television stations and began loaning money to other religious broadcasters. Crouch also organized a corporation called Community Educational Television, Inc. (CET) to acquire
educational stations, as well as companies to acquire foreign stations. At the same time, TBN (but not TTI) began to purchase the construction permits of unbuilt LPTV and translator stations.
During this period, Duff resigned as an officer and director of TBN. She continued, however, to serve in those capacities with TTI, CET, and the foreign companies. She also remained as
assistant to the president of TBN with duties including overseeing TBN's LPTV and translator operations. 10 FCC Rcd at 12021- 22 ¶ 14, 12026- 28 ¶¶ 44- 45, 48, 51- 53. When NMTV secured
full power TV stations, she was put in charge of those operations. Id. at 12057- 58 ¶ 307.
19. In 1985, pursuant to the Commission's modified multiple ownership rules, Amendment of Section 73.35555, 100 FCC 2d 74 (1985), 6 TBN acquired additional stations,
until it reached the rules' new numerical limit of 12. The ALJ found that no consideration was given as to whether TTI should acquire any of these full power commercial television stations.
10 FCC Rcd at 2028 ¶ 55. Sometime in 1986, Crouch learned that a long- time TBN programmer wished to sell the construction permit for an unbuilt full power television station in Odessa,
Texas. Communications Counsel Colby May advised Crouch and Duff that TTI could acquire the station, since the new multiple ownership rules permitted commonly held attributable
interests in up to 14 stations, if at least two were minority- controlled. 7 TTI applied for
6 Specifically, on February 1, 1985, the FCC issued a Memorandum Opinion and Order
amending its multiple ownership rules by permitting owners to hold cognizable interests in up to 12 TV stations. In addition, a group owner could hold cognizable interests in up to 14 stations if two of
the stations were minority controlled. Minority controlled was defined as more than 50 percent owned by one or more members of a minority group. The Memorandum Opinion and Order did not
discuss the concept of de facto control, nor did it change Note 1 to Section 73.3555, which reads as follows:
Note 1: The word "control" as used herein is not limited to majority stock ownership, but includes actual working control in whatever manner
exercised.
7 The ALJ found that May asserted that he based this advice on his reading of Amendment of
Section 73.3555 and the resulting rule, but did no other research. In May's view, TTI's legal standing and the racial and ethnic identity of its three board members were the crucial factors which
would allow TBN and TTI to qualify for the multiple ownership exceptions to the rule of 12. May was aware that under Note 1 control is not limited to minority stock ownership but includes actual
working control. However, May claimed he paid no attention to Note 1 or Commission precedent interpreting Note 1. He asserted that in his mind control and ownership are functionally the same in
9
Federal Communications Commission FCC 98- 313
10
assignment of the Odessa permit and changed its name to NMTV, in recognition of the fact that it was no longer concerned exclusively with LPTV and translator stations. 8 Id. at 12028- 29 ¶¶
54- 57, 63.
20. The ALJ found that although May insisted that he received no special instructions from Crouch concerning disclosures to be made about NMTV and TBN's relationship, he also
claimed that Crouch made it clear to him that Crouch wanted complete and open disclosure of all factors which would show that NMTV was a minority controlled company. (10 FCC Rcd at
12030 ¶ 64. Crouch testified " . . . I said, put everything on the record, make it clear to the agency what the relationship between NMTV and Trinity Broadcasting is, divulge everything,
put everything on the record, file it with the Commission. If they pass on it and approve it, fine, our goal was to acquire as many stations and network affiliates as we possibly could." Id. at
12030 ¶ 65. The ALJ found, however, that notwithstanding Crouch's testimony, none of NMTV's applications seeking a minority exemption including the Odessa assignment application
signed by Crouch disclosed to the Commission information about Duff's relationship with TBN or NMTV's relationship with TBN. The ALJ found that Crouch was unable to offer a credible
justification for that omission and that he ultimately sought to retract his earlier damaging testimony and place the onus on May for any failure to inform the Commission. In this regard,
Crouch stated, "... what I instructed my counsel to do was to file and put on the record everything he felt necessary to put on the record. (Emphasis supplied by ALJ). The ALJ concluded that
"Crouch's belated attempt to place the onus on his counsel is not credible and is rejected." Id.
the case of a non profit entity and the exception to the Rule of 12 was satisfied where the minority group constituted more than 50 percent of the directors. However, May agreed that neither Crouch
nor TBN could legally exercise actual working control over NMTV as that term is used in Note 1, and he advised Crouch that the directors of NMTV had to be the parties that were, in fact,
controlling and operating NMTV. 10 FCC Rcd at 12029 ¶ 57.
8 Duff sent the purchase agreement to the seller, along with a transmittal letter prepared on
TBN stationery, signing the letter as assistant to the president, her TBN title. Similarly, Duff's transmittal letter to May accompanying the FCC application for the station's transfer was prepared
on TBN stationery and she signed it as assistant to the president (of TBN). In addition, there was no evidence that at the time the agreement was executed, NMTV's board had considered (much less
approved) the purchase or discussed financing for the acquisition or construction of the station. 12 FCC Rcd at 12029 ¶ 60. A written authorization was subsequently issued by the NMTV board. At
the January, 1987 board meeting of all of the TBN- related companies, TBN's board authorized TBN to spend up to $3 million to acquire low power television construction permits and stations. The
minutes are silent about TTI's pending contract to buy a full power television station for Odessa. Id. at 12029 ¶ 61.
10
Federal Communications Commission FCC 98- 313
11
21. The Commission granted the Odessa application on June 9, 1987. The Odessa station began operation by mid- October 1988, as a TBN affiliate. It originated no local
programming. During the time NMTV held the license for the Odessa station, Duff and Ben Miller, TBN's chief engineer, supervised the station's management. They both performed their
NMTV- related activities during their normal TBN workdays. Despite the objections initially voiced by Duff and the third NMTV director, Espinoza, Crouch, within a matter of months, the
board authorized Crouch to look for a buyer for the Odessa station. In 1989, NMTV's board authorized sale of the station to permit NMTV to acquire a station in a larger market. (NMTV
had, by that time, acquired a Portland station as discussed below, thereby reaching the overall limit of 14 TBN- related stations.) In 1991, the Odessa station was sold for $650,000 in
installments to Prime Time Christian Broadcasting, Inc. (Prime Time), which continued to operate the station as a TBN affiliate. The sale price was more than $100,000 below NMTV's
construction costs. When, in early 1993, it became apparent that Prime Time could not discharge its debt to NMTV, NMTV's board voted to forgive the debt. The ALJ found that
without the debt to NMTV, Prime Time could expand its operations by building translators that would extend coverage of its principal station in Roswell, New Mexico and KMLM( TV) in
Odessa. Prime Time's Roswell station was also a TBN affiliate. Crouch understood that, at least financially, NMTV's action benefitted TBN but not NMTV. In this connection, NMTV made no
effort to recover the station's physical assets being held as security by NMTV and to sell them independently. Such action would have forced the station off the air and deprived TBN of an
outlet for its programming. 10 FCC Rcd at 12030- 32 ¶¶ 66, 73- 77, 80.
22. Even before the Odessa assignment had been granted, Crouch and Duff were exploring the possibilities for acquiring a 14th TBN- related station. Duff learned in October
1987 of an available unbuilt construction permit in Portland, Oregon. The ALJ found that NMTV, rather than TBN sought to acquire the station because TBN had its full complement of
stations. The purchase price was $520,000, although TBN's financial records showed that NMTV had cash and capital assets of less than $290,000, while its liabilities exceeded $600,000.
Nonetheless, none of the NMTV directors felt any concern about acquiring the Portland station while the company was in debt because each understood that TBN would provide whatever
funds were necessary to buy and build the station. The Commission approved the assignment of the station to NMTV about a year later, and the station began operation in November 1989 as a
TBN affiliate. 9 The station began broadcasting three local programs in 1992. With Crouch's
9 The ALJ found that May copied the information contained in NMTV's portion of the
assignment application for the Portland permit from the comparable portion of NMTV's application for Odessa. Although the application references translator applications filed by TTI in which it had
been stated that Duff was then a director of TBN and reveals that both Crouch and Duff had interest in two [noncommercial] stations and the NMTV station in Odessa, the application provides no
information about Duff's or NMTV's relationship with TBN. 10 FCC Rcd at 12033 ¶ 85.
11
Federal Communications Commission FCC 98- 313
12
concurrence, Duff hired Jim McClellan, a TBN employee, to be the Portland station manager and hired another TBN employee, Mark Fountain, to be the station's chief engineer. 10 FCC Rcd at
12030- 34 ¶¶ 67- 68, 81- 82, 88- 91.
23. As noted above, Crouch and Duff were also investigating alternatives to operation in Odessa in order to enter a larger market. Crouch had also learned in 1987 of the possibility of
acquiring a station in Wilmington, Delaware. The ALJ found that, in 1987, at a time when NMTV did not even have a bank account, the purchase proposal reflected that NMTV offered
more than $4 million for the station's equipment plus additional sums for the station's land. While Espinoza claimed that he and Duff discussed in 1987 the possible purchase of a station in
Wilmington, there are no contemporaneous board minutes or resolutions regarding the Wilmington proposal. Crouch resumed investigation of the station in late summer or autumn of
1990, and in March 1991, after discussing the matter at NMTV's annual meeting, submitted the winning bid for the station in a bankruptcy proceeding. Crouch and Alan Brown, TBN's head of
finance, signed, on behalf of NMTV, a check for $400,000 to cover the deposit for the Wilmington station. At the time Brown signed the NMTV check, he was not an officer of
NMTV. TBN's 'Praise the Lord' newsletter in May 1991 said, "we signed the agreement and deposited the down payment for the FULL POWER CHANNEL 6 serving the great Wilmington,
Delaware - Philadelphia, Pennsylvania area! Praise the Lord! This will be, God willing, and the FCC approving, a National Minority TV station (of which I am President) working in full
affiliation with your TBN." Crouch also made an appeal for funds to pay for the station. By September, TBN had received $37,000 in contributions for the purchase of the station; NMTV
had received none. A petition to deny filed against NMTV's assignment application for the Wilmington station raised an issue of whether NMTV was controlled by TBN, and, on
September 13, 1991, the Commission directed a letter of inquiry to NMTV. NMTV thereupon dismissed its assignment application. 10 FCC Rcd at 12031, 12034- 34 ¶¶ 68, 92- 95, 97- 100.
24. At the same time that NMTV was involved in the acquisition of full power television stations, it continued to apply for LPTV and translator stations. Of four LPTV applications filed
in July 1987, the Commission granted one, in Fresno, California. NMTV also filed applications in June 1988, March 1989, December 1989, May 1991, and April 1993. During this period, Duff
directed TBN's LPTV/ translator operations. NMTV's LPTV and translator stations broadcast TBN programming. 10 FCC Rcd at 12035- 36 ¶¶ 101- 106.
Initial Decision
25. The ALJ found that TBN exercised de facto control over NMTV. He found that NMTV "at all relevant times has marched in absolute lockstep with TBN." 10 FCC Rcd at
12057 ¶ 304. He based this conclusion on an analysis of six factors derived from Commission
12
Federal Communications Commission FCC 98- 313
13
precedent: 10 (1) purpose, (2) corporate composition, (3) finances, (4) personnel, (5) programming, and (6) representations to the public. Id. at 12057 ¶¶ 303- 04. Trinity had argued
that the ultimate question in resolving whether Crouch and/ or TBN exercised de facto control over NMTV is whether Duff acted independently of Crouch or as his agent when she performed
her role as a director of NMTV. The ALJ did not agree with Trinity's proposition that this is the ultimate question. In any event, he found that Trinity failed to show that Duff was independent.
10 FCC Rcd at 12059 n. 41.
26. The ALJ found that NMTV's purpose was "nothing more" (10 FCC Rcd at 12057 ¶ 306) than to carry out TBN's mission of spreading the gospel over the airwaves by permitting
the acquisition of stations that TBN would otherwise not be eligible to acquire. He observed that NMTV's articles of incorporation and bylaws make no reference to minority control and are no
different from TBN's governing documents and those of TBN's "owned and operated" stations. He also found that, despite claims that NMTV would ultimately "break away" from TBN,
NMTV remains totally dependent on TBN for money, supervision, and overall direction, and that no plan for independence has ever been developed.
27. The ALJ also found that this purpose was reflected in NMTV's corporate composition as embodied by its board of directors. He found that Crouch has always served as
NMTV's president and one of its three directors. He further found that Crouch installed as NMTV's second director, Duff, who also held TBN's second highest management position, and
had prominent and varied responsibilities with TBN in that capacity. He noted that Duff receives no remuneration from NMTV; her income comes solely from her services for TBN.
According to the ALJ, the criterion for selecting the third NMTV director, Espinoza and his successors, in addition to minority status, was past loyalty to TBN. The ALJ found that these
third directors lacked knowledge of and involvement in NMTV's affairs. For example, the ALJ found that "Espinoza never performed the duties of chief financial officer. Essentially, what
Espinoza understood was that TTI/ NMTV was separate from TBN only in that TTI/ NMTV could take advantage of certain Commission policies pertaining to minority ownership;
otherwise, TTI/ NMTV was simply another vehicle for TBN programming." 10 FCC Rcd at 12036 ¶ 111. The ALJ found that Edward Victor Hill was more active than others, but that "Hill
like his fellow directors, voted to forgive Prime Time's debt to NMTV, [but] there is no indication that he has ever pressed TBN to forgive NMTV's debt which arose from the
construction and operation of the Odessa station." Id. at 12037- 38 ¶ 122. Such an action would have been reasonable for a director acting in a fiduciary capacity for NMTV. The ALJ
concluded that control lay firmly in the hands of TBN's Crouch and Duff. Id. at 12057- 58 ¶¶ 307- 08.
10 See e. g., Arnold L. Chase, 6 FCC Rcd 7387, 7409 (ALJ 1991), citing, Benjamin L. Dubb,
16 FCC 274, 288 (1951); Southwest Texas Broadcasting Council, 85 FCC 2d 713, 715 (1981).
13
Federal Communications Commission FCC 98- 313
14
28. The ALJ found that TBN totally dominated NMTV's finances. He found that TBN's paid employees, consultants, and attorneys prepared NMTV's applications and did not bill
NMTV. From 1980 to 1987, NMTV did not maintain a separate bank account. Its finances were handled by TBN personnel and reflected as part of TBN's consolidated financial report. In these
reports, TBN's revenues and expenses relating to LPTV and translator matters were allocated to NMTV without regard to NMTV's actual activities. No one questioned why NMTV had a large
negative fund balance during those years, even though it was not actively engaged in any business activities since its pending applications had not yet been acted on. 10 FCC Rcd at
12058 ¶¶ 309- 11.
29. Until 1992, TBN advanced money to NMTV to acquire full and low power facilities without requiring any promissory note, interest, security, or repayment terms. In this regard,
TBN treated NMTV as it did its "owned and operated" stations. By contrast, TBN required formal notes and terms when it loaned money to autonomous entities. 10 FCC Rcd at 12058 ¶¶
312- 13.
30. The ALJ also found significant evidence of TBN's financial domination of NMTV in circumstances involving the Odessa station. Although NMTV had borrowed over $750,000
from TBN to construct the Odessa station, it was willing to sell the station to Prime Time for $650,000. Later, when Prime Time expressed concern that it would go bankrupt, NMTV simply
wrote off the debt. To the ALJ, this meant that NMTV had no real financial stake in this matter, since TBN would simply fund any activity in its own interest. The ALJ found that, in this case,
the only concern was to preserve Odessa as an outlet for TBN programming. The ALJ contrasted the situation in Odessa with the situation in Portland. He found that in Odessa, NMTV
did not construct a studio to originate local programming because TBN did not consider it worthwhile, whereas a studio was built in Portland because TBN considered construction in its
interest. 10 FCC Rcd at 12058- 59 ¶¶ 314- 16.
31. The ALJ also examined the overlap between NMTV's personnel and TBN's. Of NMTV's directors, Crouch has always been an officer and director of TBN and has received his
salary from it. Duff also served as an officer and director of TBN. Even after she terminated those roles, she remained a salaried employee of TBN. NMTV has never had its own
headquarters. Also, Duff performed her duties for NMTV out of TBN's offices during her TBN workday. She sometimes sent correspondence relating to NMTV on TBN stationery and used
the same TBN interoffice memoranda for NMTV employees that she directed to TBN employees. 10 FCC Rcd at 12059 ¶317.
32. TBN employees, consultants, and lawyers were routinely used, often without any charge to NMTV, to perform services for NMTV. They participated in the preparation and
14
Federal Communications Commission FCC 98- 313
15
prosecution of TBN's applications. TBN personnel performed all accounting activities for NMTV. TBN's chief engineer, Ben Miller supervised construction of the Odessa and Portland
stations, authorized purchase orders for equipment and supplies, and oversaw operations without charge. TBN's communications counsel frequently performed work on behalf of NMTV.
Originally they did not bill NMTV at all. Later, charges for NMTV work appeared as a line item in counsels' bills to TBN. 10 FCC Rcd at 12059- 60 ¶¶ 318- 19, 322.
33. Additionally, the ALJ reviewed the programming on NMTV's facilities. All of NMTV's LPTV and translators stations carry only TBN programming. The Odessa station also
carried nothing but TBN programming. With the exception of its locally produced programming, the Portland station also carries nothing but TBN programming. 10 FCC Rcd at
12059 ¶¶ 320.
34. As a final matter, the ALJ pointed out that on numerous occasions, TBN represented to the public in its newsletter, "Praise the Lord," that NMTV was the "Satellite Division" of
TBN. 10 FCC Rcd at 12059- 60 ¶ 321. The ALJ concluded "Crouch plainly regarded TTI/ NMTV as an operating branch of TBN. That was Crouch's frame of mind; that is how TBN
characterized TTI/ NMTV to the public in its newsletters; and that is how, in practice Crouch and others at TBN treated TTI/ NMTV." Id. at 12060 ¶ 321.
Exceptions and Discussion
35. TBF 11 and NMTV argue that the initial decision does not accurately depict the record in this case and that the record properly considered does not support a finding that TBN has
exercised de facto control over NMTV. Because of the complexity of the record, we will review separately the exceptions and record concerning each of the six factors relied upon by the ALJ
and then discuss our overall conclusion as to whether the record indicates de facto control.
36. Purpose. NMTV complains that, in finding that its sole purpose was to disseminate TBN programming, the ALJ ignored evidence that NMTV's establishment was intended to assist
minorities, in conformance with Commission policy. NMTV asserts that Crouch, Duff, and the other directors all testified as to the intention of assisting minorities and that NMTV carried
programming responsive to minority concerns and hired minorities. NMTV emphasizes that NMTV's "outside" minority directors, such as Espinoza, were community leaders, with
substantial experience and a sincere desire to assist minorities. NMTV also contends that the absence of language in its governing documents regarding minority control has no significance,
because such language was omitted for valid legal reasons and is unnecessary.
11 As noted, TBF's exceptions were filed jointly with TBN. Given the identity of interests
involved, references to TBF will be understood to include TBN.
15
Federal Communications Commission FCC 98- 313
16
37. Without questioning NMTV's assertion that the corporation's creation was intended to assist minorities, we nevertheless find that many aspects of the record indicate that NMTV
was viewed by its principals primarily as an instrumentality of TBN. For example, in applying for facilities, NMTV selected only communities that did not currently receive TBN
programming over- the- air. Tr. 1744- 46. As discussed below (paragraph 68, infra), NMTV stations were devoted almost exclusively to providing over- the- air TBN programming to these
communities. This is not to say that every means that TBN used to extend the reach of its programming involved the exercise of control. For example, TBN had affiliation agreements
with many stations it clearly did not control. NMTV, unlike other affiliated stations, however, was created by TBN for the purpose of carrying TBN programming. Hence, in this regard,
NMTV was intended to serve as an instrumentality of TBN.
38. We do not, however, draw adverse inferences from the failure of NMTV's governing documents to mention minority purposes or control. Although it would be logical to include
such provisions, the record contains no evidence as to whether bona fide minority- controlled entities coming before the Commission typically do. The testimony of Juggert, who drafted
NMTV's articles of incorporation, gives a credible reason why minority purpose was not mentioned in this document. He stated that, at the time, the California Attorney General's office
was actively prosecuting nonprofit corporations that exceeded the purposes stated in their articles and that the risk of prosecution was reduced by avoiding specificity. Tr. 3760- 63.
Juggert did not explain why other documents did not mention minorities (Tr. 3763), but the record does not support the conclusion that these were significant omissions.
39. Corporate composition. TBF and NMTV object to the ALJ's inference that Duff and the various "outside" directors are merely tools of Crouch and TBN. They contend that Duff's
responsibilities as a director of NMTV do not simply represent an extension of her duties with TBN, but are distinct and more substantial. Indeed, they assert that Duff independently
negotiated with TBN as to certain matters. They also take issue with the ALJ's finding that Espinoza and his successors were ignorant of and uninvolved in NMTV's affairs. They assert
that the minority directors could remove Crouch without cause, whereas the bylaws of TBN and the "owned and operated" stations protected Crouch from removal. They place particular stress
on claims that the minority directors overruled Crouch as to two matters. First, they maintain that in 1987, Duff and Espinoza rejected a proposal by Crouch to sell the Odessa station.
Second, they maintain that in early 1979 Duff and Espinoza, over Crouch's objection, sold the construction permit for the translator in Houston, Texas.
40. We find, as TBF and NMTV acknowledge, that this factor really boils down to whether Duff should be regarded as independent of or an agent of TBN, since she has been most
responsible for supervising NMTV's activities. NMTV Exceptions at 9 ¶ 12. As the ALJ
16
Federal Communications Commission FCC 98- 313
17
found, the participation of NMTV's other minority directors has been far less substantial. 12 See 10 FCC Rcd at 12036- 39 ¶¶ 108- 30.
41. We find that Duff should indeed be regarded as TBN's agent. Her duties at NMTV appear to be merely a part of her employment at TBN. Duff is a salaried employee of TBN but
receives no salary from NMTV. Tr. 1335. Although she "squeezes in" her duties for NMTV while working at her TBN office, her salary is not diminished by the time she spends on
NMTV's affairs. Tr. 1786- 87. Moreover, Duff's functions with respect to the acquisition of NMTV's stations were virtually identical to the sorts of duties she performed at TBN. Thus,
while Duff was involved in handling LPTV and translator affairs for NMTV, she was also head of TBN's low power department. MMB Exh. 107 at 2; tr. 1774. Her duties at TBN have
included both low power and full power station acquisitions. MMB Exh. 309; TBF Exh. 121 at 18.
42. Although Duff exercised additional management functions with respect to NMTV's stations that she did not have with respect to TBN's (TBF Exh. 101 at 36- 37), the record
underscores that no real distinctions were made between the interests of TBN and NMTV in Duff's performance of her duties. This is illustrated by her role in the preparation of the
December 4, 1989 program affiliation agreement for the Portland station (MMB Exh. 283), which Duff executed on behalf of NMTV and which Crouch (who was also president of NMTV)
executed on behalf of TBN. Duff testified that she did not discuss the agreement with Crouch in detail and did not negotiate the amount of TBN programming that the station would carry. Tr.
1434. She further testified that she did not know whether Crouch reviewed the agreement and that he relied on her (since she was responsible for other TBN affiliation agreements) to protect
TBN's interests. Tr. 1435- 36. Similarly, Duff executed the January 2, 1992 production agreement under which the TBN program "Joy in the Morning" was produced at the Portland
station (MMB Exh. 383). Duff, who executed the agreement for NMTV (Terrence Hickey, another NMTV/ TBN official, signed for TBN), testified that she asked Juggert to prepare the
agreement. She testified that Juggert prepared the agreement on behalf of TBN and NMTV (Tr. 1438), for NMTV (Tr. 1439- 40), and (in a deposition) for TBN (Tr. 1440).
43. In the same vein, the distinction between Duff's positions with TBN and NMTV were sometimes confused in correspondence. For example, Duff's January 30, 1987 letter
transmitting the Odessa assignment application to counsel (MMB Exh. 126) is signed "Jane Duff, Assistant to the President" and written on TBN letterhead. Duff's January 18, 1988
response to a request concerning employment at the Portland station (MMB Exh. 177) was
12 We do not accord any particular significance to the fact that NMTV has had only three or
four directors, while its bylaws authorize up to 10 directors. See TBF Exh. 101, Tab C at 3. We have no reason to doubt NMTV's claim that such provisions in bylaws are frequently boilerplate.
17
Federal Communications Commission FCC 98- 313
18
drafted in the same manner. Similarly, when TTI's name was amended to NMTV, Juggert sent the pertinent documents to TBN "Attn: Jane Duff." MMB Exh. 136.
44. We have also carefully examined another instance where Duff assertedly engaged in independent negotiations with TBN -- regarding TBN's provision of business services for
NMTV. We find that this episode does not provide firm support for Duff's independence. TBN originally provided accounting, payroll, and other services to NMTV without charge and without
any formal agreement. In 1991, TBN's accounting department complained to Duff that it wanted money, beyond that received under the affiliation agreement, to cover the cost of these services.
Tr. 1424- 25. TBN and NMTV thereupon entered into an agreement, executed by Duff on behalf of NMTV, under which NMTV paid TBN $422.50 a month for these services. TBF 101, Tab W.
Duff claims that this amount was arrived at through negotiations between her and TBN's accountant. TBF Exh. 101 at 40; Tr. 1426- 28. Yet she testified that the accountant told her that
TBN's cost for providing these services was twice that paid by NMTV or $845. Duff further testified that an independent firm's charge for the these services would have been higher.
According to Duff, she persuaded TBN to accept a fee of $422.50, one- half of TBN's costs. The difficulty with treating this as an arm's length negotiations in which Duff protected NMTV's
interests against those of TBN is that the result is not consistent with an arm's length transaction. NMTV did not even pay TBN's costs, let alone the market value of the services provided.
45. We have also carefully examined the two situations in which Duff and Espinoza purportedly overruled Crouch. Here again, however, we find that these episodes do not provide
persuasive evidence of NMTV's independence. As previously mentioned, the first of these matters involves the Odessa station. Almost immediately after NMTV acquired the Odessa
permit, on June 9, 1987, Crouch expressed dissatisfaction with the Odessa market, apparently because it was smaller than he realized and because he doubted that NMTV's station would be
carried on local cable systems. Tr. 2723. The minutes of a special meeting of NMTV's board, on June 27, 1987, reflect that Crouch proposed to explore the feasibility of transferring the
Odessa construction permit and acquiring a facility in another area. TBF Exh. 101, Tab B. The minutes further reflect that Duff and Espinoza opposed Crouch and that his motion failed for
lack of a second. According to the minutes, Espinoza then recommended planning immediately to begin the development of local programming in Odessa, but that Crouch felt that the station
should rely on TBN programming until it was financially sound. The minutes state that Duff concurred with Espinoza and agreed to direct the development of the programming.
46. Although, on its face, this episode appears to support the view that, at least on some occasions, NMTV's board and its minority members prevailed in their position over the
objections of Crouch, subsequent events do not bear out the decisions apparently made at the meeting. Despite the ostensible decision to develop local programming in Odessa, none was
ever prepared. Duff's own testimony indicates that, contrary to the impression left by the
18
Federal Communications Commission FCC 98- 313
19
minutes, her view coincided with Crouch's -- namely, that local programming was not financially justified. Tr. 1481- 83. Espinoza testified that, although he felt that local programming was
important, he had no alternative but to accept Duff's explanation that none would be developed. Tr. 4232- 37.
47. Moreover, the station was ultimately sold, as Crouch wished. Approximately two months after the Odessa station began operation, at a special meeting on December 12, 1988,
Crouch again raised the possibility of selling the Odessa station. TBF Exh. 101, Tab EE at 13. This time the matter was tabled. Five months later, in May 1989, the NMTV board unanimously
authorized negotiations for the sale of the station. MMB Exh. 256. Duff explained that she had opposed the sale in June 1987 because she did not want to leave the impression that a minority
enterprise had failed. Tr. 1733. By May 1989, she testified, she was satisfied that the station would not fail and that a proposed purchaser would provide local programming, and therefore
had no objection to sale. Tr. 1881- 83. Espinoza attributed the decision, made only seven months after the station commenced operation, to leave Odessa, to the desire of Crouch and TBN
to reach larger markets. Tr. 4245- 49. He testified: ". . . as a Hispanic, I of course would like to reach Hispanics, but the bottom line is the main goal is the preaching of the gospel to
whomever." Tr. 4249. In sum, although these events demonstrate that Duff and Espinoza at times had influence on NMTV's decisions, the ultimate direction of policy appears to have
stemmed from Crouch and TBN. It is also significant, as discussed in greater detail in paragraph 61, below, that the Odessa stations was sold for some $100,000 less than NMTV's construction
costs and that the board subsequently forgave Prime Time's $650,000 debt. The fiduciary obligations of the board members toward NMTV are not evident in these actions.
48. The second matter concerned the Houston, Texas translator station. The Commission granted NMTV a construction permit for this station on January 29, 1988. MMB
Exh. 180. NMTV made no effort to construct the station prior to expiration of the construction permit on July 29, 1989. Three months before expiration of the permit, on April 26, 1989, Duff
wrote to May (TBF Exh. 101, Tab A), forwarding a sales agreement for the Houston permit and stating:
Paul [Crouch] and I did not agree on the selling of the permit, he would like to have built the station, selling it later but we have too much going
on.
49. Duff explained in her testimony that, although TBN- affiliate CET already had a full power educational station in Houston, Crouch nevertheless wanted to build and operate the
Houston translator to carry TBN programming. She attributed this to the fact that educational stations are permitted to engage in fundraising only for station purposes and could not carry
TBN's fundraising telethon. Tr. 1819, 1821- 22. Crouch also testified that he opposed selling the
19
Federal Communications Commission FCC 98- 313
20
Houston translator for that reason. Tr. 2388- 89, 2813. According to Duff, she had no time to devote to the construction of the Houston station because she was heavily involved in the
construction of the full power station in Portland. Tr. 1818- 21. She stated that because she disagreed with Crouch, she discussed the matter with Espinoza, who supported her. Tr. 1500- 02.
She further stated that Crouch was probably upset with her for her decision because "TBN really did suffer a loss of dollars." Tr. 1822.
50. The record suggests, however, that Crouch had little real interest in operating a low power station in a market which already had a full power TBN affiliate and that the final
decision not to build had little significance to him. Crouch himself testified: " . . . the best I can recall is that there seemed to be a little inter- staff discussion and debate on whether or not that
station really should be built or should not be built because of the duplication in coverage." Tr. 2813. (The matter does not appear to have been formally considered by NMTV's board.)
Crouch's supposed interest in constructing and operating the station also seems at odds with the language of Duff's contemporaneous letter to May (above), which states that Crouch wanted to
build the station and sell it, not to build it and operate it. See also Tr. 2815 (Crouch's testimony that sale of the station after construction was considered). The claim that Duff did not want to
construct the Houston station because doing so would be too burdensome is belied by the fact that during the pendency of the Houston construction permit, NMTV's low power facility in
Fresno, California was granted, constructed, and put into operation, apparently without undue burden. See MMB Exhs. 200, 230.
51. In any event, the record does not justify interpreting the decision not to build the Houston translator as an example of Duff acting independently of TBN by putting NMTV's
interests above TBN's. Examining the likely impact of the decision on TBN and NMTV does not support such an interpretation. If, as Duff testified, the decision not to build cost TBN
"hundreds of thousands of dollars" (Tr. 1822), it would also have been a significant loss to NMTV. According to Crouch, NMTV would have received "its fair share" of revenues from the
market. Tr. 2389. NMTV, like the licensees of other non- owned and operated stations, typically received 80 percent of fundraising revenues derived from the zip code in which its stations were
located. See TBF Exh. 101 at 41.
52. As a final matter relating to NMTV's board, we give little weight to the fact that NMTV's bylaws lack a provision contained in TBN's bylaws that would protect Crouch from
removal by the other directors. TBN's bylaws were amended in 1979 to provide that, whereas other directors could be removed by majority vote of the directors without cause, directors
holding the office of president (i. e., Crouch) could only be removed for cause after a hearing. 13
13 TBN's bylaws provide that directors serve for a term of three years. TBF Exh. 104, Tab C
at 11. It is unclear whether Crouch has any protection from not being reelected after expiration of his term.
20
Federal Communications Commission FCC 98- 313
21
TBF Exh. 104 at 11- 12, Tab. C at 8- 9. The bylaws of most, but not all, of TBN's "owned and operated" stations have the provision treating Crouch differently from other directors.
MMB/ TBF Exh. 1. NMTV's bylaws do not. TBF Exh. 104, Tab. D. By itself, however, the omission of the provision does not outweigh the substantial evidence, discussed above, that
Crouch and TBN controlled NMTV.
53. Finances. TBF and NMTV argue that the financial arrangements between TBN and NMTV simply indicate that TBN is providing legitimate financial assistance to a minority
company, as contemplated by Commission policy. TBF contends that the ALJ mischaracterized several aspects of the financial arrangements. It asserts that the financial services provided by
TBN were negotiated by Duff, that NMTV could terminate these services at will, and that NMTV was intended ultimately to perform these services itself. TBF asks the Commission not
to attribute any significance to TBN's early practice of including NMTV in consolidated financial reports. TBF emphasizes that, for purposes of allocating revenue, NMTV's stations are
treated like stations that are not owned and operated by TBN. While acknowledging that TBN has made interest- free loans to NMTV on an informal basis, Trinity urges that these loans are
strictly accounted for and will be repaid. Trinity and NMTV fault the ALJ for drawing an unwarranted inference because NMTV's forgiveness of Prime Time's indebtedness with respect
to the Odessa station was not a business decision. They argue that the ALJ did not take into account that NMTV is a charitable not a business organization.
54. Although the record on this issue is mixed, on balance it provides additional evidence of TBN's control of NMTV. We agree with TBF and NMTV that NMTV's financial
dependence on TBN does not per se imply that TBN controls NMTV. We have noted that nonprofit entities are frequently dependent in this way. See La Star Cellular Telephone
Company, 7 FCC Rcd 3762, 3767 n. 14 (1992), vacated on other grounds sub nom. Telephone and Data Systems, Inc. v. FCC, 19 F. 3d 655 (D. C. Cir. 1994). However, the record also
indicates that NMTV's finances were not treated as being independent of TBN's from 1980 to 1987. While there have been significant corrective measures in this regard, we find that these
have not been complete and the most significant measure was not taken until after a petition to deny was filed questioning NMTV's control.
55. During NMTV's early years, from 1980 to 1987, before it acquired the Odessa station, there was an egregious failure to segregate NMTV's finances. As noted in paragraph 28,
supra, during those years NMTV did not have its own bank account; its payroll and other financial operations were handled by TBN personnel and reflected as part of consolidated
financial reports; and expenses and revenues were allocated to NMTV without regard to NMTV's actual operations.
56. In 1987, when NMTV acquired the Odessa station, corrective measures were
21
Federal Communications Commission FCC 98- 313
22
undertaken on the advice of counsel (Tr. 3401- 02). That year, NMTV opened its own bank account. TBF Exh. 101, Tab B. Also beginning in 1987, NMTV no longer appeared in TBN's
consolidated financial reports and, even more significantly, the financial reports no longer attributed non- NMTV low power revenues and expenditures to NMTV. TBF/ Glendale Jt. Exh. 1
at 6, 12, 18- 19. Additionally, in 1987, NMTV took the first step to formalize its arrangements with TBN under which TBN provided accounting, payroll, and other business services, by
formally authorizing TBN to provide these services. TBF Exh. 101, Tab EE at 1. Moreover, the program affiliation agreements for the Odessa and Portland stations do not treat these NMTV
stations as owned- and- operated. The agreements use a formula in which 80 percent of the donations derived from the zip code in which the station is located is allocated to NMTV and 20
percent to TBN. TBF Exh. 101 at 41, Tab X at 5, 16. This is the formula used for non- owned affiliates. By contrast TBN receives 100 percent of the zip code revenue for owned- and-operated
stations. Id.
57. These measures, while significant, have been incomplete. While NMTV has its own bank accounts, a variety of TBN officials have been signatories on these accounts. See MMB
Exh. 396; paragraph 63, infra. Espinoza, NMTV's chief financial officer, moreover, did not sign any checks. Tr. 4177- 78. Similarly, although NMTV moved to formalize TBN's provision of
business services to NMTV (including entering into the previously discussed accounting and payroll contract in 1991), this arrangement has not been an arm's length transaction, since TBN
provides services at below cost. Although the contract provides that NMTV can terminate these services and Crouch testified that NMTV will ultimately perform these services itself (Tr. 2999-
3000), the record contains no indication of how or when this will be done.
58. We find that the most significant factor, however, is the manner in which TBN has provided capital and credit to NMTV. During the years 1987- 92, TBN advanced some $9.8
million to NMTV for the acquisition and construction of stations and the payment of various expenses. TBF/ Glendale Jt. Exh. 1 at 15- 27. For most of this time, as was the case with respect
to TBN's owned- and- operated stations, TBN's practice was to make these advances without any formal note, interest, security, or repayment schedule. TBF Exh. 104 at 16; Tr. 1701, 2150- 51,
2546- 47, 2874- 76, 3809- 10, 3951- 53. Not until August 1991, after a petition to deny had been filed against the Wilmington application, did NMTV execute a formal note to cover funds loaned
by TBN, in this case for the purchase of the Wilmington station. MMB Exh. 368. Not until 1992- 93, did NMTV take formal measures to repay other indebtedness to TBN, although without
the payment of interest. MMB Exhs. 386, 399; Trinity Exh. 101, Tab. II.
59. These financial arrangements and practices indicate clearly that NMTV was not viewed as an independent entity. In their testimony, Crouch and Juggert acknowledged that in
making informal, interest- free loans, TBN treated NMTV like an owned- and- operated company and that the practice was based on TBN's inside knowledge and involvement in NMTV's
22
Federal Communications Commission FCC 98- 313
23
operations. Tr. 2997- 98, 3819- 21, 3956. Moreover, the informal advance of substantial sums of money can easily translate into determination of policy and did so here. A number of situations
illustrate this. For example, no funds were forthcoming to construct a studio in Odessa in the face of Crouch's and TBN's misgivings about the Odessa market.
60. In addition, some actions taken by NMTV, while consistent with NMTV's charitable and religious purposes, would be difficult to justify or explain, in view of NMTV's limited
resources, except as manifestations of TBN's interest in supporting certain activities. For example, in October 1992, NMTV proposed to loan $1.5 million to assist in the formation of
Community Brace, Inc. (Community Brace), a Minority Enterprise Small Business Investment Corporation (MESBIC). TBF Exh. 10 at 21- 24; TBF Exh. 101, Tab EE at 37- 39. Community
Brace was affiliated with NMTV's director, Hill, whose activities TBN also supported apart from his involvement with NMTV. TBF Exh. 102 at 10- 12. TBN was to provide $1 million to
underwrite NMTV's $1.5 million loan. The transaction, which was later abandoned for various legal reasons, was handled principally by TBN's counsel, Juggert. See Glendale Exh. 218.
NMTV's lack of capital suggests that it would have been more logical for TBN to have supported Community Brace directly and only Hill's status as a director of NMTV made it expedient to use
NMTV for that purpose. Consistent with this interpretation, director Aguilar, who was an outsider to the TBN- Hill relationship, relied totally on Crouch in approving the Community
Brace transaction and was completely ignorant of the project's ultimate fate. TBF Exh. 107 at 177- 79. Moreover, May suggested the utility of the Community Brace project in this regard
when he said in a letter to Juggert that approval of the project by the Small Business Administration could be used to "estop" the FCC from finding that NMTV was not minority-controlled.
Glendale Exh. 218 at 35.
61. Similar considerations underlie NMTV's March 1993 decision to forgive Prime Time's $650,000 debt incurred in the purchase of the Odessa station. TBF Exh. 101, Tab EE at
40- 41. Given the fact that NMTV borrowed over $750,000 from TBN in connection with the Odessa station (paragraph 47, supra) and was more than $5 million in debt to TBN overall
(TBF/ Glendale Jt. Exh. 1 at 26), it is difficult to conceive of this action as financially sound without being underwritten by TBN, which would benefit by the continuation of its
programming on the station. We reject the idea that charitable organizations are somehow immune to financial concerns simply because they are not profit- making businesses. Ramirez'
testimony is consistent with the conclusion that NMTV did not exercise independent financial judgment in this matter. He stated that when he voted to forgive the Prime Time debt (he had
just been appointed as a director) he heard no discussion of the pros and cons of forgiving the debt, whether NMTV could afford to forgive the debt, or whether there were any alternatives.
Tr. 4066, 4071- 72, 4120- 21. (The record is unclear whether TBN forgave NMTV's indebtedness for the Odessa station. Testimony by NMTV's accounting firm indicates that no indebtedness
was ever forgiven. TBF/ Glendale Jt. Exh. 1 at 27. NMTV's 1992 tax return, however, shows
23
Federal Communications Commission FCC 98- 313
24
entries for NMTV's forgiveness of Prime Time and TBN's forgiveness of NMTV. MMB Exh. 413 at 11, 13.) This episode provides further evidence of NMTV's lack of financial
independence.
62. Personnel. As they did with respect to finances, TBF and NMTV argue that the participation of TBN personnel in NMTV's affairs represents TBN's legitimate assistance to a
minority company, as contemplated by Commission policy. TBF stresses that Duff and the NMTV board, not TBN, had the authority to hire and fire NMTV personnel. TBF also asserts
that the functions performed by TBN personnel for NMTV were not the same as their jobs for TBN.
63. We find that the high degree of involvement of TBN personnel in NMTV's affairs further supports a finding that the two entities did not operate independently. We have already
discussed the difficulty in separating Duff's responsibilities towards TBN and NMTV. This factor also undercuts the argument that Duff's authority to hire and fire demonstrates NMTV's
independence. Other key officials also "wore two hats" in that same way. Crouch himself was the president of both TBN and NMTV. See, e. g., TBF Exh. 101, Tab R at 63, 72. The testimony
of Hill and Espinoza indicates that Juggert was regarded as NMTV's legal counsel as well as TBN's and participated at NMTV board meetings. Tr. 1926, 1932- 33, 4319- 20. Juggert
acknowledged, for example, that in preparing the program affiliation agreement for the Portland station, he represented the interests of both NMTV and TBN without discussing any conflict of
interest with Duff. Tr. 3664- 66. TBN's FCC counsel was also regarded as NMTV's. Tr. 1933. Additionally, several TBN officials have served as officers of NMTV, including: Philip Crouch
(Paul's brother; chief of staff, TBN; assistant secretary, NMTV), Matthew Crouch (Paul's son; administrative assistant, TBN; assistant secretary, NMTV), Allan Brown (chief of staff and
director of finance, TBN; assistant secretary, NMTV), Terrence Hickey (vice president, TBN; assistant secretary NMTV), and Charlene Williams (director of finance TBN; assistant secretary
NMTV). MMB Exhs. 107, 309, 396; TBF Exh. 101, Tabs Q at 38, R at 138, EE at 11, 16, 34. Philip Crouch, Matthew Crouch, Brown, Hickey, and Williams have also been signatories on
NMTV's bank account. MMB Exh. 396.
64. Further overlap in duties occurred because TBN made its engineering and administrative resources available to NMTV without charge. See TBF Exh. 104 at 16. In this
regard, Ben Miller, TBN's vice president and director of engineering, also served as a "technical consultant" for NMTV. MMB Exh. 378. Although, as TBF and NMTV claim, he had
comparatively few and limited routine duties concerning NMTV (see Glendale Exh. 210 at 96- 97, 138- 39), the record indicates that he sometimes exercised his authority in a manner that
blurred the distinction between his dual roles. On at least one occasion, Miller signed correspondence to counsel as director of engineering of NMTV. MMB Exh. 249. Miller sent
correspondence, memos, and purchase orders concerning NMTV's stations over his signature as
24
Federal Communications Commission FCC 98- 313
25
a TBN official. MMB Exh. 228, 242, 361, 362. Outside parties have also addressed correspondence concerning the Odessa station to Miller in his capacity as a TBN official. MMB
Exh. 198. In one instance, Miller sent a memo to the staff of the Odessa station on NMTV engineering department stationery, in which he said "We have two surplus [pieces of equipment]
here at TBN's facility in California which I will have sent to you . . . ." MMB Exh. 328. Similarly, several individuals, who worked on TBN's low power applications, did similar work
for NMTV in most cases without charge. Tr. 1412- 16, 2142- 43, 2170- 71. When Crouch was interested in investigating the Wilmington station for NMTV's purchase, he sent a TBN station
manager, Dale Osborn, who prepared a report (which Miller reviewed) without charge to NMTV. MMB Exhs. 331, 333, 334; Tr. 2921.
65. Additional overlap occurred with respect to administration. TBN provided bookkeeping and accounting services including payrolls, financial statements, income tax
returns, purchasing requirements, and accounts payable. See TBF Exh. 101, Tab W. NMTV and TBN used the same accounting firm. TBF/ Glendale Jt. Exh. 1 at 1, 5- 6. NMTV also used
technical manuals developed for TBN stations. Tr. 2128. NMTV's employee policies and insurance plans were modelled after TBN's. See TBF Exh. 101, Tab CC (NMTV and TBN
health insurance records); MMB Exh. 182 (NMTV use of TBN employment form; MMB Exh. 245 (Duff memo regarding rules and regulations).
66. Additionally, past association with TBN was a factor in several key hiring decisions. All of NMTV's "outside" minority directors had previously been involved in TBN programs.
TBF Exh. 102 at 9 (Hill); TBF Exhibit 103 at 5 (Ramirez); TBF Exh. 106 at 2- 3 (Espinoza); TBF Exh. 107, Tab A at 4 (Aguilar). Jim McClellan was working on the TBN program "Joy in the
Morning" when he was hired to be the station manager in Portland. McClellan heard about the opening from TBN's Miller and Hickey. TBF Exh. 109 at 6. He then approached Duff, who
hired him. Id. at 8; TBF Exh. 101 at 47- 48. The production of "Joy in the Morning" followed McClellan to Portland. Trinity Exh. 109 at 14- 15. Similarly, Duff hired TBN employee Mark
Fountain as chief engineer at Portland based on Miller's recommendation. Tr. 1908- 10, 2260.
67. Programming. TBF and NMTV argue that the fact that NMTV stations are TBN programming affiliates does not establish that TBN controls NMTV. They insist that NMTV's
directors elected to carry TBN programming because they independently believe that it serves the needs of minorities. TBF contends that it would violate the First Amendment for the
Commission to draw adverse conclusions from NMTV's choice of programming.
68. The record in this proceeding provides no support for a finding that NMTV exercises programming discretion independent of TBN. NMTV's stations have always functioned as TBN
outlets. Both the Portland and Odessa stations carried the entire TBN schedule. Tr. 1433, 4424. It was understood that NMTV's low power stations would carry TBN programming. Tr. 2970,
25
Federal Communications Commission FCC 98- 313
26
4327. All NMTV stations are listed as TBN affiliates. MMB Exh. 341 at 6. As noted above (paragraph 37), NMTV typically applies for facilities in communities that do not already receive
over- the- air TBN service. Even to the extent that NMTV has provided local programming (in Portland) this programming is strongly connected with TBN. "Joy in the Morning," produced in
Portland, is carried as a TBN network show and was originally produced in TBN's California studios. TBF Exh. 101, Tab EE at 36; TBF Exh. 109 at 14- 15. The local program "Northwest
Praise the Lord" is produced in accordance with TBN guidelines and, unlike non- owned stations, NMTV is not required to get TBN clearance for its content. Tr. 4423- 24. The nonbroadcast
charitable project, "His Hand Extended," is modelled after TBN's version. Tr. 4419- 20. The Portland station sends monthly reports concerning its local Prayer Partners Line to the director of
TBN's prayer ministry. Tr. 4417, 4419. At times of the day when Portland's Prayer Partners telephone line is not active, the station gives out TBN's number. Tr. 4418, 4464- 65.
69. We recognize that the fact of program affiliation is not in itself indicative of control. See Fox Television Stations, Inc., 10 FCC Rcd 8452, 8519 ¶ 165 (1995) (subsequent history
omitted). Nor do we question the sincerity of the testimony by NMTV's principals as to the merit of TBN's programming. See TBF Exh. 101 at 44- 45 (Duff); TBF Exh. 102 at 11 (Hill);
TBF Exh. 103 at 11 (Ramirez); TBF Exh. 106 at 16- 17 (Espinoza). However, given the relationship between these witnesses and TBN, this view seems a foregone conclusion and
provides no evidence of independent programming discretion. We do not believe that our conclusions in this regard in any way infringe freedom of speech or religion. We draw no
adverse conclusions from the fact that NMTV stations carry any specific programming. We draw our conclusions only from the apparent absence of independent programming discretion.
70. Representations to the Public. TBF maintains that no adverse conclusion should be drawn from representations that NMTV was TBN's "satellite division." According to TBF, the
term "division" was not being used in any legal or technical sense, and it claims that the term was not applicable despite the evidence that the finances of NMTV were not being handled
separately, NMTV and TBN had consolidated annual meetings, and Duff and others intermingled their duties with TBN and NMTV.
71. We find that such circumstances provide further evidence of TBN's failure to respect the independence of NMTV. Several issues of the TBN "Praise the Lord" newsletter for the
years 1982- 84 describe Espinoza as a "board member of our Satellite Division." MMB Exhs. 49 at 17, 53 at 11, 66 at 5, 76 at 5, 82 at 12. Crouch acknowledges that he reviewed this language
and that it is inappropriate. Tr. 2556. Espinoza also acknowledges that he was aware of this language. Tr. 4172. Crouch claims that he was not distinguishing between a "division" and an
"affiliate." Tr. 2556. However, during that same time period, NMTV was, in fact, being treated as a division in several respects. NMTV annual meetings were conducted as part of TBN's
combined annual meetings. See, e. g., MMB Exh. 91. NMTV was included in combined
26
Federal Communications Commission FCC 98- 313
27
financial statements. Trinity/ Glendale Jt. Exh. 1 at 3- 4. NMTV did not have its own employees or bank account. Id. at 3. Thus, the description of NMTV as a "division" appears to reflect
NMTV's true status in the minds of TBN's principals. However, as previously discussed, after 1987, when NMTV acquired the Odessa station, NMTV was no longer treated in this manner.
Likewise, the record discloses no references to NMTV as a "division" after that time.
72. Summary. We find that the totality of the evidence demonstrates TBN's de facto control of NMTV. The determinative question is whether TBN has the power to "dominate the
management of corporate affairs." See Fox Television Stations, Inc., 10 FCC Rcd 8452, 8514 ¶ 154 (1995) (subsequent history omitted), quoting Benjamin L. Dubb, 16 FCC 274, 289 (1951).
In this regard, as our preceding discussion indicates in greater detail, we have examined evidence of TBN's control with respect to the policies that we typically consider most indicative of
control, namely those regarding: (1) the finances of the station, (2) personnel matters, and (3) programming. See Southwest Texas Public Broadcasting Council, 85 FCC 2d 713, 715 (1981).
As to station finances, we find that TBN's practice of informally funding NMTV based on TBN's inside knowledge and involvement indicates that the two entities were not viewed as
independent and allowed TBN to determine NMTV's policies. Thus, our examination of the decisions regarding the Odessa station, especially the decision to forgive Prime Time's
indebtedness, the decision to sell the Houston translator, and the Community Brace project persuades us that TBN's financial involvement has indeed had a tangible impact on NMTV's
policies. As to personnel matters, we find that the dual roles played by key TBN/ NMTV officials, the extensive use of TBN administrative and engineering personnel and resources in
NMTV's business, and the practice of making key appointments from the ranks of TBN personnel effectively removes any distinction between the two organizations and goes beyond
TBN's merely providing assistance to NMTV. Finally, as to programming, we find no evidence that NMTV realistically exercises discretion independent of TBN.
73. This case, therefore, differs from Southwest Texas, supra, where we found that the University of Texas did not exercise de facto control over the licensee's stations, although it
managed and largely financed them. We found that despite the University's substantial involvement, the licensee continued to exercise control over the station's basic policies. 85 FCC
2d at 714. (Moreover, we noted that the management agreement and related financial arrangements with the University had been terminated.) Here, although the parties have taken
some steps to operate NMTV as a separate entity, for example, by conducting business through formal actions of NMTV's board, we find the record devoid of evidence corroborating true
independence in policy decisions. For the reasons stated above, we are not persuaded that the episodes involving the construction of the Odessa station and the sale of the Houston translator
substantiate independence. We do not find credible the suggestion that NMTV could theoretically oust Crouch or terminate TBN programming. Without in any way impugning the
parties' sincerity in wishing to serve minorities, we find that a preponderance of the evidence
27
Federal Communications Commission FCC 98- 313
28
indicates that NMTV is still treated essentially as an instrumentality of TBN.
74. We also distinguish this case from Fox, supra, in which we held that the licensee, Fox, was not controlled an alien- owned corporation, News Corp., in violation of the foreign
ownership restrictions of the Communications Act. We made this finding despite the facts that (1) News Corp. had a substantial equity interest in Fox, (2) Fox and News Corp. had some
common directors and used the same attorneys, (3) Fox was controlled by Rupert Murdoch (a United States citizen), who was News Corp. 's chairman and CEO, and (4) a News Corp.
subsidiary provided programming to Fox. 10 FCC Rcd at 8514- 19 ¶¶ 154- 65, 8522 ¶¶ 174- 75. Despite these factors, we found, on the totality of the evidence, that News Corp. functioned as a
passive investor in Fox, and that de facto, as well as de jure, control over Fox was effectively exercised by Murdoch, a United States citizen, as an individual rather than by News Corp.
Murdoch's, rather than News Corp. 's, control was established by many factors indicating his dominance over the licensee's operations. By contrast, the record here establishes that TBN was
no passive investor in NMTV, but through Crouch and other TBN personnel, including its accountants, attorneys, and engineers, was an active participant in many facets of NMTV's
operations to such an extent that NMTV did not function as an independent entity. Moreover, in this case, in which the issue is whether NMTV was minority- controlled, there is no counterpart
to Murdoch's role with respect to the alien ownership issue in Fox. That is, there is no minority individual who controls both NMTV and TBN. Duff, while a minority, is Crouch's subordinate
at TBN. Crouch, who exercises the greatest degree of common control between the two entities, is a nonminority.
B. Abuse of Process
Initial Decision
75. The ALJ found that Crouch and TBN abused the Commission's processes by using NMTV as a "surrogate" in applying for authorizations. 10 FCC Rcd at 12060 ¶ 324. He found
that they exhibited specific abusive intent by (1) seeking to circumvent the Commission's rules and improperly claiming minority preferences and (2) in deliberately concealing the nature and
extent of the relationship between TBN and NMTV. Thus, according to the ALJ, TBN -- knowing that NMTV was not minority controlled -- falsely claimed minority preferences in
applying for translator and LPTV licenses and falsely claimed an exception to the multiple ownership rules in acquiring the Odessa and Portland stations and attempting to acquire the
Wilmington station. Id. at 12060- 61 ¶¶ 325- 29. The ALJ further found that TBN repeatedly concealed from the Commission material facts regarding the relationship between NMTV and
TBN. Id. at 12061- 62 ¶¶ 330- 31.
76. The ALJ rejected the contention that Crouch had relied on the advice of counsel in
28
Federal Communications Commission FCC 98- 313
29
claiming NMTV's entitlement to minority preferences. The ALJ found that Crouch intended to claim such preferences irrespective of counsel's advice and knew that NMTV's entitlement to
preferences was suspect. He also rejected Crouch's assertion that he had directed counsel to make full disclosure of material facts. 10 FCC Rcd at 12062 ¶¶ 332. See also paragraphs 6, 20,
supra. Finally, the ALJ noted that Crouch had been found to have abdicated responsibility to assure himself that representations in a renewal application were true and correct, International
Panorama TV, Inc. (KTBN- TV), 83D- 4 (ALJ Jan. 25, 1983) (SALAD Exh. 35), but that this previous misconduct had no deterrent impact on Crouch and TBN. Accordingly, the ALJ
concluded that TBF's application for renewal of its license for WHFT( TV) should be denied.
Exceptions and Replies
77. TBF and NMTV deny that there has been any abuse of the Commission's processes. They claim that Commission precedent with respect to the type of control required in order to
claim minority preferences is at best unclear. They contend that Commission precedent both condones passive minority ownership and encourages nonminorities to provide administrative,
technical, and financial assistance to minorities -- such as TBN provided to NMTV. In this regard, they assert that each time NMTV claimed minority preferences, Crouch and Duff
consulted with communications counsel, who assured them that, as long as minorities constituted a majority of NMTV's board of directors, NMTV was in compliance with Commission policies
for seeking minority preferences. According to TBF and NMTV, Crouch and Duff had no reason to disbelieve such advice.
78. TBF also denies that any material information was withheld from the Commission. It asserts that NMTV's applications revealed the commonality of directors between TBN and
NMTV, as well as the facts that NMTV would carry TBN programming and that TBN would finance NMTV. It further asserts that additional facts about TBN's relationship with NMTV
were revealed in other Commission filings. 14 TBF observes that in connection with the Odessa
14 Like the ALJ, we do not believe that information contained in various filings, such as
ownership reports etc., supports TBF's position on the abuse of process issue. We agree with the following observation by the ALJ:
Even if one accepts the argument that it is incumbent on the Commission to review as many as 80 prior filings before finding an applicant to have lacked candor, the various
filings of TBN and NMTV do not begin to give a full and truthful picture of the extent of their relationship. The bulk of the documents reveal no more than that a
person named Mrs. Jane Duff, or Jane Duff, will be receiving copies of TBN applications or had witnessed signing of a purchase agreement for a television
translator construction permit or station. With respect to the KTBN- TV renewal application which was filed on July 29, 1988, the document reveals only that Jane
29
Federal Communications Commission FCC 98- 313
30
assignment application communications counsel met with staff members of the Mass Media Bureau's Video Services Division and submitted further information at their request. TBF
disputes the ALJ's finding that Crouch did not direct counsel to make full disclosure; it contends that Crouch told counsel to disclose all material information. Trinity asserts that in International
Panorama, supra, Crouch and his communications counsel, May, were found to have been candid.
79. In its proposed findings of fact and conclusions of law, the Bureau initially argued that, although TBN did exercise de facto control over NMTV, TBF should not be disqualified.
MMB PF& C at 158- 59, 184- 85. The Bureau agreed with TBF that no abuse of process had occurred with respect to NMTV's LPTV and translator applications because Commission policy
only required that minorities constitute a majority of NMTV's board of directors and did not require that they exercise de facto control. Id. at 151, 155- 56. The Bureau further proposed that
NMTV's acquisition of full power stations violated Commission policy since the rules required that minorities exercise de facto control of NMTV for this purpose. Id. at 150- 55. However, the
Bureau maintained that the record did not support a finding that Crouch, TBN, or NMTV intended to deceive the Commission in this respect. Id. at 159. Therefore the Bureau opposed
disqualification.
80. The Bureau, however, now supports TBF's disqualification. It reaffirms its position that there was no abuse of process with respect to the LPTV and translator applications because,
with respect to those stations, Commission policy as to de facto control had not been clarified before the hearing designation order in this case. MMB Reply at 2- 3. As to the full power
stations, the Bureau indicates that after further reviewing the record, in light of the initial decision, it now believes that the record does support a finding of intentional deception. Id. at 3-
4, 14.
81. Glendale and SALAD fully support the initial decision. They argue that
Duff, 'the Administrative Assistant to the President' [emphasis added] is the person primarily responsible for the station's EEO program. Only with respect to the
ownership report for CET [the corporation set up to acquire and hold noncommercial TV licenses] filed November 13, 1989, is it revealed that Jane Duff, a
businesswoman, is a director of both CET and NMTV, and an employee of TBN... It required two Commission letters of inquiry before sufficient facts were forthcoming
to permit even a preliminary analysis of the TBN/ NMTV relationship. 10 FCC Rcd at 12061 n. 47.
30
Federal Communications Commission FCC 98- 313
31
Commission policy clearly requires that minorities have de facto control both in the context of the low power and full power applications in this case. Glendale argues that NMTV's
applications concealed material information concerning the full extent of TBN's participation in NMTV's affairs. Glendale especially criticizes statements in NMTV's opposition to the petition
to deny in the Wilmington proceeding, in which NMTV made statements that Glendale asserts are misleading. Glendale contends that Crouch and Duff did not rely on valid advice of counsel.
Discussion
82. The ALJ concluded that "TBN and Crouch created a 'sham' corporation to take advantage of the minority preference" and repeatedly concealed material facts from the
Commission that would have made clear that TBN controlled NMTV. 10 FCC Rcd at 12061- 62 ¶¶ 330- 31. More specifically, the ALJ found, "none of NMTV's applications seeking a minority
exemption . . . disclosed to the Commission information about Duff's relationship with TBN or NMTV's relationship with TBN." Id. at 12030 ¶ 65. The ALJ concluded that NMTV's
applications were "models of nondisclosure" in that regard, and therefore constituted abuse of process. Id. at 12062 ¶ 332. He held that: "The repeated concealment of material facts
concerning the TTI/ NMTV relationship with TBN cannot be [sloughed] off as an unintentional mistake. It was intentional deception since disclosure would have thwarted TBN's and Crouch's
ambitions. . . The Commissions 'scheme of regulation rests on the assumption that applicants will supply the Commission with accurate information. '" Id. at 12062 ¶ 331.
83. We agree with the essence of the ALJ's finding. As our discussion under the de facto control issue indicates, NMTV was created in order to give Crouch interests in stations that
would otherwise be prohibited and to give TBN outlets for its programming that would otherwise be unavailable. This objective could be realized only by representing that NMTV was
"minority- controlled" Our findings show that NMTV was in fact controlled not by its predominately minority board of directors but by TBN and that it was distinct from TBN in form
only. Abuse of process includes the use of a Commission process to achieve a result that the process was not intended to achieve See Broadcast Renewal Applicants, 3 FCC Rcd 5179, 5199
n. 2 (1988). That is certainly the case here. However, abuse of process further implies not only that the purposes of a Commission policy have been subverted but that the parties had specific
abusive intent. See Evansville Skywave, Inc., 7 FCC Rcd 1699, 1702 n. 10 (1992). Thus, the issue becomes whether TBN's principals acted with a good faith belief that NMTV could
honestly be presented as "minority- controlled" or whether they acted with knowledge that the claim was false or with reckless disregard of the truth. 15 See Evansville Skywave, Inc., 7 FCC
15 Reckless disregard is the equivalent of knowing deception. See RKO General, Inc., 670
F. 2d 215, 225 (D. C. Cir. 1981), citing, Golden Broadcasting Systems, Inc., 68 FCC 2d 1099, 1106 ¶ 16 (1978).
31
Federal Communications Commission FCC 98- 313
32
Rcd 1699, 1700 ¶ 14 (1992). We conclude, that with respect to NMTV's full- power applications, the principals knew that, because of the relationship between NMTV and TBN, their claim of
minority control was at best doubtful and at worst false.
84. The failure of the relevant full power applications to disclose Duff's relationship with TBN is especially telling with respect to TBN's abusive intent. Crouch is the President of TBN
and Duff is Assistant to the President of TBN, while NMTV's board consisted of three members for most of the period in question. Had the applications stated that Duff was Crouch's Assistant --
and hence that the President of TBN and his Assistant constituted the majority of NMTV's board -- it clearly would have called into question the claim that NMTV was minority- controlled
for the purposes of the multiple ownership rules. Similarly, the applications did not apprise the Commission of TBN's massive involvement in NMTV's finances, employment practices, and
programming. A reasonable person could appreciate that if all of the circumstances had been made clear, the Commission would have had ample reason to inquire further and ultimately to
deny NMTV's applications. Moreover, the record confirms that TBN's principals knew that the circumstances surrounding TBN's relationship with NMTV made it inappropriate to claim
minority control without fully disclosing to the Commission the nature of that relationship. We will expand on these findings below, but first, we deal with NMTV's low power applications.
85. Because we find a serious abuse of process with respect to NMTV's full power applications, we need not dwell at length on the low power applications. The Bureau agrees with
TBF that, at the relevant time, Commission precedent did not make reasonably clear that the Commission expected minorities to have de facto control of low power applicants, such as
NMTV, under our policies. Our own review of the record confirms that applicants may well have been confused, before the HDO in this proceeding clarified the point (8 FCC Rcd at 2480 ¶
38), that the exercise of de facto control by nonminorities subverted the purposes of the minority ownership policy in this context. The focus of the Commission's earlier precedent regarding
lotteries was on the composition of the board and beneficial ownership, and not on de jure or de facto control. We therefore credit May's testimony that he read the 1983 report and order and
public notice and, pursuant to their language, advised Crouch and Duff that NMTV could certify its status as minority owned based on the composition of its board of directors. TBF Exh. 105 at
9- 12; Tr. 3273- 77. Because May's advice was reasonable in light of the existing precedent and consistent with the Bureau's own interpretation, we find that Crouch and Duff were entitled to
rely on this advice. We will not discuss this matter further.
86. In contrast to the policies regarding low power applications, however, we find that Commission rules and precedent have always given fair notice that de facto control is required to
take advantage of the special provision concerning minority ownership in the multiple ownership rules. NMTV's applications were filed pursuant to a provision of the Commission's multiple
ownership rules which provided that a licensee or its stockholders, partners, members, officers,
32
Federal Communications Commission FCC 98- 313
33
and directors may not own, operate, control, or have a cognizable interest in more than 14 television stations or more than 12 stations that are not "minority- controlled." 47 C. F. R. §
73.3555( e)( 1) (1986). Because Crouch, an officer and director of both TBN and NMTV, already had an interest in 12 stations, his ability to acquire an interest in additional stations
licensed to NMTV depended on whether NMTV was "minority- controlled." The rules state that "Minority- controlled means more than 50 percent owned by one or more members of a minority
group." 47 C. F. R. § 73.3555( d)( 3)( iii) (1986). However, the multiple ownership rules also specifically provide that: "the word 'control' as used herein is not limited to majority stock
ownership, but includes actual working control in whatever manner exercised." 47 C. F. R. § 73.3555( d) Note 1. The clear intent of Note 1 is to prevent licensees from circumventing the
limitations imposed by the multiple ownership rules by exercising actual control over stations over which they did not have legal control. Moreover, Note 1 reflects the Commission's long-standing
precedent, applicable to non- stock corporations such as NMTV, that "control" encompasses every form of actual or legal control over basic operating policies. See Southwest
Texas Public Broadcasting Council, 85 FCC 2d 713, 715 (1981).
87. Contrary to TBF's suggestion, Commission precedent has always required minorities to exercise de facto control over "minority- controlled" stations. Indeed, it is hard to imagine
how an entity controlled by minorities in name only or in which the minorities' interests are totally passive could foster the objective of the Commission's policies to "broaden minority
voices and spheres of influence over the airwaves. . . . " 16 . The memorandum opinion and order adopting the provision at issue makes specific reference to the traditional standard. It states that:
A question arises as to the proper definition of a minority owned station for the purposes of our multiple ownership rules. In this regard, we note that the
Commission has adopted different standards of minority control depending on the mechanism used to foster its minority policies. [Footnote
citing Minority Ownership in Broadcasting, 92 FCC 2d 849 (1982) (Policy Statement)]. In the context of the multiple ownership policies, we
believe that a greater than 50 percent minority ownership interest is an appropriate and meaningful standard . . . .
Amendment of Section 73.3555, 100 FCC 2d 74, 95 ¶ 46 (1985) (Memorandum Opinion and Order). 17 While this language does not directly set forth the Commission's policy with respect to
16 Minority Ownership in Broadcasting, 92 FCC 2d 849, 850 ¶ 2 (1982).
17 TBF also relies on the dissenting statement of the Commissioner (later Chairman) Dennis
R. Patrick that:
Under the majority's scheme, the right to purchase broadcast stations over the established
33
Federal Communications Commission FCC 98- 313
34
minority ownership, the Policy Statement, cited by the Memorandum Opinion and Order does.
88. The Policy Statement notes that the basic standard for minority ownership was originally enunciated in the Commission's 1978 policy statement, Minority Ownership of
Broadcasting Facilities, 68 FCC 2d 979, 983 n. 20 (1978) (1978 Policy):
We currently anticipate issuing a [tax] certificate where minority ownership is in excess of 50% or controlling. Whether certificates would be
granted in other cases will depend on whether minority involvement is significant enough to justify the certificate in light
of the purpose of the policy announced herein.
Policy Statement, 92 FCC 2d at 853 ¶ 7. The Policy Statement discusses the Commission's application of this standard to specific situations and makes clear that what the Commission had
in mind was 50 percent ownership that constitutes voting control or an equivalent degree of interest. Lacking that, the Commission would decide on a case- by- case basis whether the
minority interest was sufficient to accomplish the purposes of the policy.
89. This is clear in the Policy Statement's discussion of William M. Barnard, 44 RR 2d 525 (1978), which was decided within months after the Commission enunciated the 1978 Policy
standard. Policy Statement, 92 FCC 2d at 853- 54 ¶ 7. There, the Commission granted a tax certificate for assignment of a station to a limited partnership in which minorities held a 45.5
percent equity interest and a minority served as the general partner with full authority to manage and control the station. The Commission held that it would grant the tax certificate because
minorities both held a substantial equity interest and had complete control over station affairs. Id. The Policy Statement adopted the Barnard treatment of limited partnerships, which required
both substantial equity and actual control, and stated explicitly that it would review limited partnerships to avoid "sham" arrangements, by determining whether the minority general partner
ceiling turns upon the race of the proposed owners alone. No further showing is required with respect to how these owners may contribute to diversity. No concern
is given as to whether the 51 % minority owners will exert any influence over the station's programming or will have any control at all.
Memorandum Opinion and Order, 100 FCC 2d at 104. This dissenting statement does not, of course, reflect the views of the Commission majority who adopted the rule, nor is it evidence that the
Commission, in adopting the 51 percent standard, was not concerned that minorities would have any control over station policies, as Commissioner Patrick claimed. As discussed above, the Commission
clearly intended to establish a "meaningful standard" of control to ensure that minorities had actual control over the stations benefitting from its minority ownership policies.
34
Federal Communications Commission FCC 98- 313
35
actually had the authority to determine the basic policies of the station's operations. 18 Policy Statement, 92 FCC 2d at 854 -55 ¶¶ 8- 11. In this regard, the Commission cited Southwest Texas
Broadcasting Council, supra, thereby manifesting an intent to require de facto control in this context, id. at 855 n. 29, in order to achieve the underlying objectives of the policy.
90. In addition to dealing with the tax certificate treatment of limited partnerships, the Policy Statement also extended the tax certificate policy in certain respects. It provided that tax
certificates could be issued for the sale of shares in a minority- owned or minority- controlled licensee by individuals, whether members of minority groups or not, who had provided financing
for the initial acquisition of the license. The Policy Statement states:
Generally, to be eligible for a tax certificate, such transactions must not reduce minority ownership of and control in the entity below 51 percent.
[Footnote omitted]
Policy Statement, 92 FCC 2d at 857 ¶ 16. [Emphasis added] Thus, as the Memorandum Opinion and Order notes, while the precise combination of equity and control may vary in different
contexts, the Commission has consistently required that minorities have both a substantial equity interest and actual control of the station.
91. We find that the record concerning the filing of the Odessa application on February 3, 1987 discloses that Crouch, Duff, and May were aware that the extent of TBN's involvement
in NMTV's operations in connection with that application made it doubtful that they would be able to comply with those requirements. Like the ALJ, who heard the witnesses and who could
assess the forthrightness of their testimony, we are not persuaded that the parties' failure to make full disclosure of all relevant facts and circumstances to the Commission can properly be
excused on the basis of alleged reliance on counsel. Although May advised Duff and Crouch that NMTV qualified as a minority- controlled entity based on the composition of its board of
directors (TBF Exh. 105 at 11, 15- 16; Tr. 3487- 90), he admitted that he also advised that, to satisfy the Commission's requirements, NMTV's board had to have actual control over the
operations of NMTV and that Crouch and TBN could not supplant the board's authority over its affairs. Tr, 3226, 3228- 29, 3604.
92. We reject May's testimony that he felt assured that NMTV was in compliance with the de facto control standard. May testified that he believed that TBN's extensive involvement in
NMTV's affairs would not raise an issue of de facto control, provided that NMTV's board
18 By contrast, the Policy Statement did not adopt a proposal cited by TBF that nonminorities
would be encouraged to enter into "joint ventures" with minorities in which they would provide financing, management, and technical assistance. See Policy Statement, 92 FCC 2d at 852 n. 17.
35
Federal Communications Commission FCC 98- 313
36
formally met and adopted NMTV's policies and decisions and that NMTV formalized its relationship with TBN. Tr. 3206, 3226, 3228, 3399- 401 3604. This view, however, does not
reflect a reasonable interpretation of Commission policy and does not warrant reliance. As set forth above, the Commission requires that the directors actually determine the affairs of the
company, not that they merely observe the formalities of doing so. 19 Moreover, even if all of the parties were not totally familiar with all of the Commission holdings concerning de facto control,
Crouch, in particular, could not have been unaware that he dominated NMTV, that NMTV was not truly independent of TBN, and that there was no basis to claim otherwise. May also testified
that, because the rule permitted nonminority group owners to have a "cognizable" interest in NMTV's stations, this implied that Crouch and TBN could be active in NMTV's affairs. TBF
Exh. 105 at 14; Tr. 3227- 29, 3398. He further testified that he believed that the Commission's minority policy was intended to encourage nonminorities to give administrative, technical, and
financial assistance to minorities and be involved to an extent that otherwise might not be permissible. TBF Exh. 105 at 15- 16; Tr. 3204- 06, 3226- 27. Once again, this reasoning is self-serving
and without foundation. Domination of the enterprise by nonminorities, as has been shown here, goes well beyond providing assistance in the form of "investment and support" and
gives nonminorities an interest that is far more than merely "cognizable."
93. Moreover, the parties were aware that the Commission had never before applied the provision of the multiple ownership rules to an arrangement such as the one involving NMTV.
May confirmed that he considered the NMTV application "somewhat unique," since the amended rule had not yet been applied to a nonprofit public charity. Tr. 3379. Indeed, both May
and Crouch understood that NMTV was the first applicant seeking the benefit of the exception to the rule. TBF Exh. 105 at 16; Tr. 2674. In this regard, as the ALJ noted, Crouch and May
emphatically testified that Crouch had explicitly instructed May to make full disclosure of material facts to the Commission in connection with the Odessa application. 20 Tr. 2674, 2709-
11, 2755- 57, 3202- 03, 3205- 06, 3379- 81. The purchase agreement for the Odessa station was expressly made contingent on NMTV's ability to establish compliance with the multiple
ownership rules. 21
19 As noted under the de facto control section, the parties in 1987 eliminated some of the most
egregious failures to respect NMTV's separate identity, such as mixing together the accounts of TBN and NMTV. However, these corrective measures were incomplete, and, for example, TBN
continued to advance money to NMTV as if NMTV were an owned- and- operated company. See paragraphs 55- 59, supra.
20 As noted above, the ALJ found that Crouch's effort to modify his testimony in this regard in
an attempt to shift the blame for nondisclosure to May was not credible. 10 FCC Rcd at 12030 ¶ 65.
21 The agreement stated:
36
Federal Communications Commission FCC 98- 313
37
94. Our examination of the Odessa application (TBF Exh. 101, Tab Q at 31- 36) (and the substantially similar Portland and Wilmington applications), however, indicates that it does not
contain a full disclosure of relevant facts. The exhibit purporting to demonstrate compliance with the multiple ownership rules states merely that "a majority of its directors are minorities,
and National Minority TV, Inc. is therefore minority controlled and in compliance with rule 73.3555( d)( 1)." Id. at 33. It does not acknowledge that there is even a question of whether
NMTV should be deemed minority controlled despite the involvement of TBN in its affairs. Moreover, the facts set forth in the application were not complete or fully accurate. The exhibit
reflected that Crouch was an officer of TBN but not that he was also its president and a director. Id. at 35. It stated that Duff had an interest in CET (TBN's educational television affiliate), but
did not indicate that she was an employee with the second highest management office in TBN. Id. at 36. It made no mention of other aspects of the relationship between NMTV and TBN --
e. g., that they had the same address and that TBN would provide financing and accounting and engineering services. The application did not indicate that TBN would supply programming in
the future. Id. at 30. (The exhibit also contained the erroneous statement that NMTV had the same three officers and directors since its organization. May testified that in preparing the
exhibit he relied on an outdated file that did not reflect that TBN officials Terrence Hickey and Philip Crouch had served as assistant secretaries of NMTV. Tr. 3538- 40, 3595- 97.)
95. We note, as Trinity points out, that additional disclosures were made after the filing of the application. May testified that, during the pendency of the Odessa application, he had
. . . Buyer's President, Paul F. Crouch, however, is an officer and director of [TBN-related entities], which in the aggregate hold interests in the
maximum number of television facilities permitted by non- minority controlled organizations under Commission Rule 73.3555. 47 C. F. R.
§ 73.3555. Accordingly, buyer will be required to establish compliance with [the rule], before the assignment specified herein
can be approved by the FCC. Buyer further represents and warrants that it will take any and all reasonable steps to establish compliance
with Commission Rule 73.3555, 47 C. F. R. § 73.3555 . . . ; however, in the event the FCC does not approve the assignment for reasons
associated with Rule 73.3555, and its interpretation and/ or application thereof, then this Agreement shall automatically become
void, and Buyer and Seller shall be relieved of any and all obligations to the other whatsoever without liability.
TBF Exh. 101, Tab Q at 12- 13.
37
Federal Communications Commission FCC 98- 313
38
several conversations with Alan Glasser, the Commission staff attorney responsible for processing the application. TBF Exh. 105 at 16- 17. May does not indicate that he took the
initiative in coming forward to supplement the information presented in the application. Rather, the discussions apparently occurred because Glasser had:
dealt with a number of other petitions and projects that Dr. Crouch was involved in, [a] nd so, in some sense, I think he felt as if he had a pretty good
understanding or knew Dr. Crouch and knew the Trinity organization.
Tr. 3232. During the conversations, Glasser "would inquire about things like . . . . is Trinity going to provide the programming?" Id. May relates that he told Glasser during these sessions
that Duff was an employee of TBN and that the Odessa station would carry TBN programming. Tr. 3232- 33, 3236. May also relates that he informed Glasser that NMTV's financial
certification was based on a commitment from TBN (although he did not mention other aspects of the relationship such as the fact that TBN was furnishing an open line of credit and accounting
services). Tr. 3233- 34, 3238.
96. Trinity asserts that these disclosures rebut any inference that TBN's principals intended to abuse the Commission's processes. It maintains that May's dealings with Glasser do
not provide any reason to fault his candor during these sessions. 22 It further asserts that these disclosures did not prompt the Bureau to pursue a formal inquiry into de facto control. The
Bureau merely requested additional information from NMTV to make certain that each of the three listed directors had equal voting rights in the corporation. Id. May responded to the
Bureau's informal request, submitting copies of NMTV's articles of incorporation, bylaws, and organizational minutes. TBF Exh. 105, Tab. Q. In his cover letter, May stated: "NMTV is
governed by the majority action of its directors, unanimous votes are not required." Id. at 1. The Bureau thereupon approved NMTV's application.
97. We accept Trinity's point that, at least in hindsight, the Bureau might have followed up Glasser's discussions with May more vigorously. We also have no basis to fault May's
conduct toward Glasser. Any shortcomings by the Bureau in this regard, however, do not provide a basis to absolve the parties for their failure in the NMTV application to fully disclose
the relevant facts in the first place.
22 Glasser (who is now deceased) did not testify in this proceeding. However, the record
contains an account of an interview with Glasser reported in a January 28, 1989 article in the Los Angeles Times (TBF Exh. 105, Tab R), which was received into evidence as relevant to May's state
of mind. Tr. 678. After the close of the record, TBN submitted a sworn declaration by Glasser in an attempt to further bolster its case.
38
Federal Communications Commission FCC 98- 313
39
The FCC . . . . 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. This duty of candor is basic,
and well known.
RKO General, Inc. v. FCC, 670 F. 2d 215, 232 (D. C. Cir. 1981). Unlike the applicant in Fox, Crouch and May did not affirmatively seek to bring the material facts to the Commission's
attention so that the Commission could "vet" the proposed transaction. See Fox, 10 FCC Rcd at 8490 ¶ 93. On the contrary, rather than the parties voluntarily presenting the Commission with
the pertinent facts, it appears that May's belated disclosures were prompted by Glasser's probing based on his prior familiarity with TBN.
98. Moreover, subsequent representations by NMTV do not evidence the candor May assertedly showed Glasser. For example, NMTV's opposition to petitions to deny its application
to acquire the Wilmington station stated that (MMB Exh. 353 at 10- 11, 17):
NMTV has its own bank accounts from which it pays its own employees and other creditors, and has its own revenues, from the sale of
broadcast time and spots. NMTV receives its own contributions as a recognized 501( c)( 3) organization. It is qualified to do business
in California, Texas, and Oregon, is in good standing [footnote omitted], and has regular meetings of the board of directors at
which corporate business is discussed and voted upon. NMTV also has its own employee policies and its own health insurance
coverage.
. . . .
NMTV is a ten- year old organization which has operated two broadcast stations separated by 1500 miles. It receives its own revenue, and, as an
exempt corporation, its own contributions. It is qualified to do business in three states. . . . It hires and fires its own employees,
has its own employee policies, and has its own insurance. It files its own tax returns. It pays its own bills.
These statements significantly distort the actual relationship between TBN and NMTV, as described in detail in our discussion of de facto control. By way of example, while NMTV files
its own tax returns in the sense that individual tax returns are prepared for NMTV, this is done
39
Federal Communications Commission FCC 98- 313
40
by TBN accounting personnel and an accounting firm shared with TBN. Similarly, while NMTV has its own employee policies and insurance, were merely copied from TBN's. 23
99. Moreover, the record demonstrates that Crouch had been advised that compliance the Commission's policies required that actual control of NMTV be in the hands of NMTV's
directors and could not be exercised by TBN or Crouch. See Paragraph 91, supra. Yet, as discussed in the de facto control section, the record shows that at the time of the Wilmington and
Portland applications and NMTV's response to the petition to deny, TBN and Crouch exercised de facto control over virtually all aspects of NMTV's actual operations, including the prior
decisions with respect to the Odessa and Portland stations, as discussed above. Thus, if there were any doubt as to whether the structural relationship between NMTV and TBN at the time the
Odessa stations was acquired subverted the minority ownership policies, the actual operation of the Odessa and subsequent stations confirms the abusive nature of their ownership by NMTV.
100. Conclusion. As to the full power applications and the exception to the multiple ownership rules, we find that NMTV was in violation of our rules and that the record indicates
that Crouch and others were aware that there was a need to make full disclosure to the Commission because of the circumstances surrounding NMTV's claim of minority control.
NMTV's applications, however, contain no mention of the material facts that would have alerted the Commission to these circumstances. We conclude that these omissions were deliberate and
deceptive. Although May apparently did not lie when questioned directly by the Bureau's processing staff, the principals' underlying lack of candor at the outset is not negated by the
absence of a more searching inquiry. Moreover, the record indicates that the principals' subsequent adherence to their questionable theory in pleadings was also lacking in candor and
that the actual operation of the stations was inconsistent with the minority ownership policies as understood by the principals. Accordingly, based on the application and the circumstances
surrounding its filing, and the manner in which the NMTV stations were actually operated, we
23 Other representations questioned by TBF's opponents have less significance. NMTV stated
(MMB Exh. 353 at 26) that "the cornerstone of NMTV's funding to acquire WTGI- TV is its December 7, 1990 letter from the Bank of California. . . . " Testimony indicates that the letter was a
mere formality and that the loan would actually be made by TBN. Tr. 2118- 19. In context, however, the statement related to allegations made about whether fundraising would be used to
finance the acquisition -- allegations as to which the source of the loan was not material. MMB Exh. 353 at 23- 24, 26. Moreover, the testimony in question explained that the bank loan was intended to
conceal TBN's commitment from the seller (which might have viewed TBN's "deep pocket" as a basis to raise the price), not from the Commission. Tr. 2119. In any event, to the extent that there
was ambiguity, TBN's role in financing the acquisition was timely disclosed in response to a subsequent Commission inquiry. TBF Exh. 121 at 16. Additional statements discussed by TBF's
opponents are not significant enough to merit separate comment.
40
Federal Communications Commission FCC 98- 313
41
find that the ALJ correctly concluded that the principals did not intend to apprise the Commission of questions concerning NMTV's eligibility or operate the stations consistently with
the Commission's minority ownership policies. In the final analysis, the record shows that Crouch and his associates abused the Commission's processes by claiming that NMTV was a
minority entity despite the circumstances indicating otherwise, that they were not forthright about this in the relevant applications, and that they did not intend to comply with Commission
policy in the operation of the stations.
101. Turning to the factors relevant to assessing the seriousness of misconduct, we find that TBF's application for license renewal should be denied. See Character Qualifications, 102
FCC 2d 1179, 1227- 29 ¶¶ 102- 06 (1986). Abuse of process is serious willful misconduct which directly threatens the integrity of the Commission's licensing processes. Id. at 1211 ¶ 62. The
misconduct was committed at the highest levels of the licensee's organization and involved several different applications. In mitigation, it is relevant that the legal issues involved were not
totally free of ambiguity and the licensee did have the advice of counsel. We conclude that the loss of a single station license is an adequate and appropriate deterrent to any repetition of this
conduct by the principals here. Accordingly, we conclude that, absent further information, these matters will warrant no further consideration in any future proceedings.
102. In our analysis, we have treated Crouch's past record of compliance with Commission rules and policies as essentially neutral. Questions regarding his conduct were
considered in International Panorama TV, Inc. (KTBN- TV), FCC 83D- 4 (ALJ Jan. 25, 1983) (SALAD Exh. 35). Timothy Flynn, a former TBN official, improperly conducted ascertainment
surveys in connection with an application, and falsely represented in the application how the surveys had been conducted. The ALJ in that case faulted Crouch for delegating excessive
responsibility to Flynn but exonerated Crouch of any dishonesty. Thus, while the instant misconduct does not reflect an extension of a pattern of deceptive practices, it does involve a
further failure by Crouch to ensure compliance with Commission rules and policies.
V. ISSUES REGARDING GLENDALE
Misrepresentation and Lack of Candor
Initial Decision
103. The ALJ found that Glendale's 51 percent stockholder, George Gardner (Gardner) did not make misrepresentations or lack candor before the Commission in connection with
applications for extension of time to construct filed by a company he owns called Raystay Co. (Raystay). 10 FCC Rcd at 12046 ¶ 210. For the reasons set forth below, we will reverse that
finding and disqualify Glendale.
41
Federal Communications Commission FCC 98- 313
42
104. In March 1989, Raystay, which also owns several cable systems, filed applications for authority to construct five LPTV stations, all in Pennsylvania. Two were to be located in
Lancaster, with their transmitters co- located atop a structure owned by the Ready Mixed Concrete Company. Two others would be located in Lebanon, with their antennas co- located on
the Quality Inn Hotel. A fifth application, in Red Lion, would have an antenna located on property owned by Raystay. Id. at 12047 ¶ 216. The Commission granted the five construction
permits to Raystay on July 24, 1990, specifying an expiration date for the permits of January 24, 1992. 10 FCC Rcd at 12047 ¶ 218. The ALJ found that, after grant of the permits, Gardner
appointed Harold Etsell (Etsell), a vice president of Raystay, to oversee the development of the five LPTV stations. On February 12, 1991, Etsell prepared a "Low Power TV Business Plan," in
which he proposed that the five stations would be linked with W40AF (TV40), Dillsburg, Pennsylvania, an existing LPTV station licensed to Raystay, in a network to provide an
alternative movie service supplemented by local programming of interest to cable subscribers. The plan was premised on cable carriage, and the ALJ found that both Etsell and Gardner
considered that cable carriage was necessary for the five stations to be viable. Id. at 12047 ¶¶ 215, 219- 20.
105. The ALJ found that, although cable operators in the area expressed interest in Etsell's concept, Raystay obtained no commitments from cable operators. 10 FCC Rcd at 12047
¶ 221. According to the ALJ, in the absence of a viable business plan, Gardner was unwilling to proceed with the construction of the five LPTV stations, especially since his existing LPTV
station, TV40, had been losing money. Id. at 12047 ¶ 222. The ALJ found that, in early 1991, Gardner asked Etsell to devote fulltime to GH Cable Properties, another co- owned business. At
about the same time, in May 1991, Raystay entered into an agreement with Quality Family Companies (Quality), under which Raystay would grant Quality exclusive rights to air
programming on the LPTV stations, subject to Raystay's authority over the operation of the station. Quality agreed to lease or purchase all equipment necessary to make the stations
operational and to make specified monthly payments. Programming was to begin on August 31, 1991, but the agreement was terminated in August 1991 when Quality failed to make required
payments. Id. at 12050 ¶ 246 & n. 36.
106. The ALJ found that Raystay had also had discussions with three parties concerning the possible sale of one or more of the LPTV construction permits. He found that in March or
April 1991, Gardner received an inquiry from Dennis Grolman (Grolman) expressing an interest in one or more of the LPTV permits. Discussions with Grolman broke off after Raystay entered
into the Quality agreement. 10 FCC Rcd at 12052 ¶ 259. When the Quality agreement was terminated, the discussions resumed, with Lee H. Sandifer (Sandifer), a vice president of
Raystay. By now, Grolman was interested only in the Red Lion permit. Sandifer and Grolman agreed to a sale of the Red Lion permit on October 10, 1991 for $10,000. Id. at 12047 ¶ 214,
42
Federal Communications Commission FCC 98- 313
43
12052- 53 ¶¶ 259, 264- 67.
107. The ALJ found that TBN sent Raystay letters expressing an interest in purchasing the construction permits. After the Quality agreement fell through, Sandifer authorized
Gardner's son David to enter into discussions with TBN. Although not an officer of Raystay, David Gardner was involved in Raystay's affairs as an employee of Waymaker Company, a
company also owned by Gardner, which provides management services to Raystay. Raystay made an offer to sell TBN TV 40 and the permits for $400,000. TBN made a counteroffer of
$150,000 for TV40 and $5,000 each for the five other LPTVs, which Gardner rejected. On November 11, 1991, TBN sent Raystay a purchase agreement and applications contemplating the
sale of the five LPTV's. On December 3, 1991, Gardner instructed Sandifer and David Gardner to discontinue negotiations with TBN. The ALJ found that Gardner had done so because he
planned to file the Glendale application. 10 FCC Rcd at 12046 ¶¶ 211- 13, 12052 ¶ 257.
108. According to the ALJ, around October 1991, Raystay also had discussions with Robert Shaffner about the possibility of Raystay acquiring Shaffner's cable system and using
TV40 as partial payment. In late 1991, there were discussions about Shaffner possibly purchasing TV40 and the construction permits, contingent on Shaffner entering into a deal with a
third party, which, however, fell through in December 1991. 10 FCC Rcd at 12052 ¶ 258.
109. By December 1991, Raystay had not started construction of the facilities. On December 20, 1991, Raystay filed separate applications for extension of each of the four
Lancaster and Lebanon permits. Preparation of the applications was arranged by David Gardner, who provided information to the applications' draftsman, John Schauble (Schauble) of the law
firm of Cohen and Berfield. After David Gardner reviewed the applications, he sent them to Sandifer, who reviewed them and sent them on to Gardner. Gardner reviewed the applications
and signed them. 10 FCC Rcd at 12048 ¶¶ 223- 29.
110. Exhibit 1 of each application contained Raystay's rationale for requesting the extension. The exhibits read in their entirety (TBF Exh. 245 at 3- 4, 7- 8, 11- 12, 15- 16):
The permittee respectfully submits that a grant of the instant application would be in the public interest for the following reasons:
Initially, it must be noted that Raystay Co. has built and is currently the licensee of LPTV station W40AF licensed to Dillsburg, PA. Raystay built
the station pursuant to a construction permit issued to it by the Commission.
43
Federal Communications Commission FCC 98- 313
44
At the present time, equipment for the station has not been ordered or delivered. Raystay, however, has had discussions with equipment suppliers
concerning the types and prices of equipment that could be used at the site specified in the construction permit. It has entered into
lease negotiations with representatives of the owners of the antenna site specified in the applications, although these
negotiations have not been consummated. A representative of Raystay and an engineer visited the antenna site and ascertained
what site preparation work and modifications need to be done at the site.
Raystay has undertaken research in an effort to determine the programming that would be offered on the station. It has had discussions with
program suppliers to determine what programs could be available for broadcast on the station. It has also had continuing
negotiations with local cable franchises to ascertain what type of programming would enable the station to be carried on local cable
systems.
The denial of this extension request could eliminate any possibility of the proposed LPTV service being offered to the community. No
application mutually exclusive with Raystay's construction permit application was filed, so no other entity has expressed an interest
in providing this service.
Accordingly, Raystay requests that the Commission extend the date for construction for a period of six months from the date this
application is granted or the date the current construction permit expires, whichever is later.
The Bureau, without asking for additional information, granted the extensions on January 29, 1992, with the permits now to expire on July 29, 1992. 10 FCC Rcd at 12048 ¶ 229.
111. By July 1992, Raystay had still not started any construction. In June, Schauble wrote to David Gardner saying that he would prepare a new exhibit for a new set of extension
applications if Raystay had done additional planning to get the stations on the air, otherwise he would use the existing exhibit. After discussions with David Gardner, Schauble sent him
applications containing the same Exhibit 1 used in the December 1991 application. David Gardner sent the applications directly to Gardner, because Sandifer was on vacation. The ALJ
found that Gardner signed the applications not realizing that Exhibit 1 was the same as before.
44
Federal Communications Commission FCC 98- 313
45
On September 23, 1992, the Bureau, without asking for additional information, granted extensions until March 23, 1993. 10 FCC Rcd at 12051 ¶¶ 247- 49.
112. The ALJ considered allegations that Exhibit 1 contained misrepresentations or was lacking in candor. He found that the exhibit candidly admitted that construction had not been
started, which he considered the most important factor under the Commission's rules. 10 FCC Rcd at 12063 ¶ 339. He found that with respect to most of the statements in the Exhibit there
was no real dispute as to their accuracy. Thus he found that: (1) David and George Gardner had discussions with equipment suppliers; (2) David Gardner and an engineer had visited the
proposed transmitter sites; and (3) Raystay had undertaken research to find programming for the station. Id. at 12063 ¶¶ 339- 40.
113. Only one statement in the exhibit troubled the ALJ -- the claim that Raystay had "entered into lease negotiations" with the owners of the proposed transmitter sites. The ALJ
observed that this statement referred to two one- minute phone calls that David Gardner had with representatives of the site owners. The ALJ concluded, however, that, while it was questionable
to characterize these brief discussions as "negotiations," there had been no intent to deceive the Commission and the statement was a mere exaggeration. 10 FCC Rcd at 12063- 64 ¶¶ 341- 42.
114. The ALJ also found no intent to deceive in Raystay's using the same Exhibit 1 in its second extension requests as it had in the first requests. In the ALJ's view, the Bureau must have
known that the exhibits were identical and that Raystay had not satisfied the criteria for an extension (because no construction had been undertaken) and, therefore, could not have been
deceived. 10 FCC Rcd at 12064 ¶ 343. The ALJ held that Raystay never abandoned its intent to build the stations, and had little to gain from selling the unbuilt stations, but even if it intended to
sell them, this would not be improper. Id. at 12064 ¶¶ 344- 46. The ALJ concluded that even if the statement regarding lease negotiations was considered untrue, Gardner had no reason to
know that it was false. Id. at 12065 ¶ 349.
Exceptions and Replies
115. TBF and the Bureau contend that Exhibit 1 reflected disqualifying lack of candor and misrepresentation. They assert that the Exhibit gives the false impression that Raystay was
actively working towards the construction of the stations when, in fact, George Gardner had no plans at that time to construct the stations and was intending to sell them. They also assert that
specific statements in the exhibit were false. They argue in particular that: (1) Raystay was not engaged in any "lease negotiations" regarding the transmitter sites; (2) the exhibit gave the false
impression that an engineer visited the sites on behalf of Raystay, when it was actually a TBN engineer who visited the sites; (3) there were no "continuing negotiations" with cable franchisees
at the time the extension application was filed; and (4) contrary to the exhibit, other entities, such
45
Federal Communications Commission FCC 98- 313
46
as TBN, were interested in the facilities. TBF and the Bureau maintain that Gardner knew he had no plans to construct and could appreciate the false impression that the exhibit conveyed and
observe that he had previously been found to have lacked candor in an earlier Commission proceeding, RKO General, Inc. (WAXY- FM), 5 FCC Rcd 642, 644 (1990).
116. Glendale replies that the initial decision correctly resolved this issue. It insists that the statements made in the exhibit were substantially accurate. It further insists that Gardner
never abandoned his intention to find a viable plan to construct and operate the stations. According to Glendale, Gardner would not have sought an extension for the purpose of selling
the stations.
Discussion
117. We find that Exhibit 1 reflects a significant lack of candor. We expect licensees to represent truthfully to the Commission their intentions and the reasons for their actions. See
KQED, Inc., 5 FCC Rcd 1784, 1784- 85 ¶¶ 3- 5 (1990), recon. denied, 6 FCC Rcd 625 (1991). Exhibit 1 does not do so. We reach this conclusion, although we agree with the ALJ that Exhibit
1 on its face provided no basis for granting an extension. Under 47 C. F. R. § 73.3534( b), extensions of time to construct broadcast stations will be granted under only three circumstances:
(1) Construction is complete and testing is underway looking toward prompt filing of a license application;
(2) Substantial progress has been made i. e., demonstration that equipment is on order or on hand, site acquired, site cleared and construction
proceeding toward completion; and
(3) No progress has been made for reasons clearly beyond the control of the permittee (such as delays caused by governmental budgetary
processes and zoning problems) but the permittee has taken all steps to expeditiously resolve the problem and proceed with
construction.
Exhibit 1 clearly does not attempt to comply with any of these provisions. It does not seek to show that construction had been completed, that substantial progress had been made, or that lack
of progress was due to circumstances clearly beyond Raystay's control. The record provides no indication of why the Bureau relieved Raystay of its obligations under the rule.
118. The fact that the Bureau seemingly ignored the problematic nature of Exhibit 1, however, does not provide a basis to conclude that the exhibit raises no question of candor. It is
46
Federal Communications Commission FCC 98- 313
47
true that Raystay did not conceal its failure to make substantial progress toward construction of the stations and that the Bureau could have denied the extension applications based on that
acknowledged defect. However, Exhibit 1 was clearly intended to persuade the Bureau to grant an extension anyway, and Raystay was obliged to be truthful in its representations, whether its
exhibits were consistent with the rule or not.
119. We disagree with the ALJ's conclusion that Raystay's representations concerning the specific factors cited in support of the extension requests were substantially accurate.
Raystay had not "entered into lease negotiations" with the site owners. David Gardner testified that this statement was based on events that occurred while he was engaged in negotiations with
TBN in October 1991 concerning the possible sale of the permits. Glendale Exh. 209 at 4- 5. He stated that TBN asked whether one of its engineers, Tom Riley (Riley), could inspect the sites.
Accordingly, David Gardner called the Ready Mixed Concrete Company and the Quality Inn and asked whether sites were still available and whether Riley could inspect them. Telephone
records for October 10, 1991 indicate that the calls lasted one minute each. Id. at 4, 9. These one minute calls were the "lease negotiations" that Exhibit 1 refers to and during which,
according to a June 3, 1993 declaration by David Gardner (TBF Exh. 246 at 1), he "generally discussed possible lease terms." David Gardner's hearing testimony indicates that the "lease
terms" referred to were whether the site was available. Tr. 4724- 26. These calls cannot fairly be described as "lease negotiations." Similarly, David Gardner indicated that Exhibit 1's assertion
that "A representative of Raystay and an engineer have visited the antenna site" refers to Riley's visits and his own, which were not at the same time. Glendale Exh. 209 at 5- 6. The obvious
implication of Exhibit 1, however, is that a Raystay representative accompanied an engineer to the sites in connection with Raystay's construction plans. In fact, Riley's visit had to do with
TBN's possible purchase of the permits and not at all with any construction efforts by Raystay, and the representation is misleading.
120. The representation that Raystay has "had continuing negotiations with cable television franchises. . ." is at best an exaggeration. The direct written testimony of both George
and David Gardner indicates that this representation refers to the discussions that Etsell had with cable operators in connection with his "Low Power TV Plan," which are indeed the closest to
anything that can fairly be described as "continuing negotiations." Glendale Exhs. 208 at 5- 6, 209 at 6. See also TBF Exh. 210 (the low power TV plan). These contacts and work on the
plan, however, terminated some nine months before the first extension application. TBF Exh. 265 at 51- 66. (At the hearing, George and David Gardner also attempted to characterize their
sporadic contacts with cable operators as "continuing negotiations." Tr. 4815, 4926- 28, 55235, 5264- 65. However, there is nothing about this testimony that would support a finding that
Etsell's Plan had again become a plausible approach.) The underlying problem with the claim of "continuing negotiations" is that, as Gardner testified, the true and undisclosed significance of
Exhibit 1's paragraph about the contacts with programmers and cable operators is that they
47
Federal Communications Commission FCC 98- 313
48
resulted in no viable business plan. Tr. 5272- 743. To Gardner, the paragraph explains why construction was not begun. Id. To an uninformed reader and apparently the Bureau, however,
the paragraph appears to do just the opposite -- i. e., to give assurance that Raystay was taking steps leading toward construction.
121. Also problematic is Raystay's representation that "No application mutually exclusive with Raystay's construction permit application was filed, so no other entity has
expressed an interest in providing this service." Given the interest expressed by TBN and others in purchasing the construction permits, this statement is misleading. Although the statement is
not literally false in that no mutually exclusive applicants expressed an interest to the Commission, Raystay was aware that other parties -- i. e., potential buyers -- were interested in
operating the facilities, a fact inconsistent with Exhibit 1's assertion that denial of the extension requests could eliminate any possibility of the proposed LPTV service. The potential buyers
may well have applied if the frequency were vacant. Thus, the statement clearly left the reader with an inaccurate impression.
122. The problem with Exhibit 1, however, goes beyond these specific deficiencies. Taken as a whole, Exhibit 1 was intended to leave an impression that was manifestly false --
namely, that Raystay had a good faith intention to proceed diligently with construction of the stations. This intent, which can be discerned from a fair reading of the exhibit, is confirmed by a
letter concerning preparation of the second extension application from Schauble to David Gardner. Schauble wrote: "Please let me know if any additional planning has been done that we
can use to convince the Commission that Raystay has been diligent in working to get the stations on the air." TBF Exh. 249. The Bureau also seems to have understood Raystay's request in that
light. In granting the second extension, the Bureau wrote (TBF Exh. 252):
In support of your request, you state that Raystay has entered into negotiations with representatives of the owners of the antenna sites specified in
these applications. You also state [that] Raystay has undertaken research in an effort to determine programming. Based on these
facts, the Commission has decided to afford Raystay a final opportunity to complete construction. These applications will be
granted for an additional six months. Raystay is cautioned, however, that the Commission does not expect to grant any
additional extensions of time or assignments of the construction permits.
The Bureau's expectation that Raystay would complete construction within six months implies that the extension was granted based on a belief that Raystay was committed to proceed with
construction.
48
Federal Communications Commission FCC 98- 313
49
123. Viewed in this light, Exhibit 1 deceived the Bureau as to the reasons for Raystay's actions and its intentions. The record leaves no doubt that, at the time that Raystay filed its
extension applications, Gardner had no present intention to proceed with construction of the stations. A finding to this effect does not depend, as Glendale asserts, on a selective reading of
the record. Gardner testified (Tr. 5270):
My experience with TV40 [which was losing money] absolutely got in my way of doing anything without having a viable business plan. I had
learned my lesson there. And there was no way that I was going to go ahead. I was urged by I believe Mr. Etsell to go ahead with
them without having everything in place. But I resisted that.
See also Tr. 5235- 38, 5274, 5280- 81. He further testified that he had "no idea" of when -- or if -- construction of the stations would begin or he would develop a viable plan. Tr. 5236- 37, 5276,
5281. In this regard, he explained (Tr. 5277- 78):
Well I can't see the future that well. The reason we applied for these construction permits in the first place was to put them on the air. And my
difficulty with TV40 caused me to go much slower than I would have if I hadn't had the TV40 experience.
But we were still hopeful that we would find a way to make it work. We did dedicate a lot of time to it. And we had several situations that I felt were going fairly
well. And the application for extension was something that we needed to do.
And we not only had the business plan that we're talking about with the cable systems, but we had Mr. Shaffner who was going to take TV40 off
our hands. And I was interested in preserving the construction permits in the event that he wanted those. We had certainly a
situation with Trinity that I had to back out of. But that didn't mean to me that Trinity was the only group that would have been
interested in taking TV40 and probably be interested in the CPs along with it.
I thought our plan was pretty good. We just couldn't find a way to implement it. But that didn't at that time mean to me that no one else was going
to put a plan together.
49
Federal Communications Commission FCC 98- 313
50
124. This testimony indicates that Gardner had no foreseeable prospect of finding a viable plan or of beginning construction of the station. He had at most an indefinite hope that
something would turn up -- and most likely this would be the sale of the permits. 24 Gardner had told Etsell months before the extension applications were filed to suspend his work on his low
power TV business plan. TBF Exh. 265 at 66. The record contains no indication that the plan was ever revived as a viable prospect. For example, in October 1992, after the extensions had
been granted, David Gardner suggested that, rather than relying on cable carriage, the LPTV stations could be used to provide multi- channel service as an alternative to wired cable.
Glendale Exh. 221; Tr. 4948. The Quality programming deal had fallen through as had sales negotiations with Shaffner and TBN. The only matter that came to fruition was the sale of the
Red Lion permit. In the absence of a viable business plan, no funds were budgeted for development of the LPTV stations. Tr. 5104- 05, 5237- 38. When Raystay refinanced its
business in July 1992, LPTV development was excluded from the scope of the loan. 25 TBF Exhs. 261, 264 at 17- 18, 261; Tr. 5058- 62, 5086- 87. Indeed, after Schauble told David Gardner
that the Commission would not likely grant a third extension unless Raystay made substantial progress in constructing the stations and that the Commission would not likely allow sale of the
permits, Raystay promptly surrendered the permits. TBF Exhs. 255, 256. As Gardner himself admitted in his testimony, the true reason that construction had not begun -- the absence of a
business plan -- is "missing" from Exhibit 1. Tr. 5272- 73.
125. We find that the lack of candor reflected in Exhibit 1 should be attributed to George Gardner. Although he may not have not have been fully aware of all of the facts underlying the
specific statements in the exhibit (such as whether David Gardner had met with the site owners), he knew that he had no present intention of constructing the facilities and that other entities had,
in fact expressed an interest in them. He therefore knew that the exhibit was misleading.
24 The Commission has granted extension of a construction permit to permit sale where failure
to complete construction was due to circumstances beyond the permittee's control. Beacon Radio, Inc., 18 FCC 2d 648, 649- 50 ¶¶ 3- 6 (1969). However, the permittee's failure to construct because of
an economic judgement that the station was not viable did not warrant an extension to permit sale. Community Service Telecasters, Inc., 6 FCC Rcd 6026, 6027 ¶ 5, 6028 ¶¶ 7- 8 (1991). Thus, the
permittee's right or intention to sell the permit is not dispositive, it is the permittee's diligence in undertaking construction.
25 The agreement did not preclude Gardner from seeking funds from alternative sources to
undertake LPTV development, if he chose to do so. Tr. 5297, 5339- 40. To the extent that the agreement reflects Gardner's intended course of action, it is consistent with the lack of a definite plan
to construct, since Raystay negotiated provisions in the loan agreement that permitted either the transfer of its LPTV interests to an affiliate (so that Gardner could develop them) or sale to a third
party. TBF Exh. 264 at 14, 20; Tr. 5087- 90, 5182- 83.
50
Federal Communications Commission FCC 98- 313
51
126. Gardner's candor has already been impugned in a prior Commission proceeding. In RKO General, Inc. (WAXY- FM), supra, Gardner was the principal of Adwave Company, an
applicant for an FM station in Fort Lauderdale, Florida. As part of his diversification showing, he proposed to divest himself of Raystay's cable interests by placing them in trust. See also
RKO General, Inc. (WAXY- FM), 4 FCC Rcd 4679 (Rev. Bd. 1989). The Commission noted that the Review Board had found that the proposal was lacking in candor because under the trust
arrangement Gardner would retain almost all of the benefits of stock ownership including the right to participate in the management of the cable systems, 5 FCC Rcd at 643 ¶¶ 8- 9, and could
not fairly be described as a divestiture. Adwave entered into a settlement of the proceeding and asked for a Commission determination that the lack of candor finding would not bar Gardner
from acquiring additional stations. Accepting the Board's findings as true, the Commission noted that the misconduct was an isolated transgression, which would not necessarily bar future
broadcast ownership. It held that Gardner would be permitted to acquire additional stations on a showing that (1) he had not been involved in any further significant misconduct, (2) he enjoyed a
reputation for good character in the community, and (3) he would undertake meaningful measures to prevent the future occurrence of FCC- related misconduct. The Commission also
observed "Of course there should be no occurrence of misconduct in connection with the new application." 5 FCC Rcd at 644 ¶¶ 18- 22. When he applied for the five LPTV facilities,
Gardner proffered a showing, which the Bureau accepted as adequate. TBF Exhs. 259- 60.
127. Despite these assurances, Gardner has once again been found responsible for the type of deliberate misconduct for which he was previously admonished. Because we rely on the
accuracy of representations to the Commission, lack of candor is a serious breach of a licensee's obligations. See WHW Enterprises, Inc., 753 F. 2d 1132, 1139 (D. C. Cir. 1985); Character
Qualifications, 102 FCC 2d 1179, 1211 ¶ 61 (1986). The repetition of such serious misconduct by Glendale's controlling principal even after he had been admonished to avoid such misconduct
renders Glendale unqualified to become a Commission licensee. See Mid- Ohio Communications, Inc., 5 FCC Rcd 940 ¶ 5 (1990). See Character Qualifications, 102 FCC 2d at
1227- 28 ¶ 102. Nevertheless, as in the case of TBF, we conclude that denial of a single station application is an adequate and appropriate deterrent to any repetition of this conduct by the
principals here. Accordingly, we conclude that, absent further information, these matters will warrant no further consideration in any future proceedings.
VI. CONCLUSION
128. We have found that TBF's application for renewal of its license to operate WHFT( TV) should be denied and we have found Glendale unqualified to be a Commission
licensee. Accordingly, both applications are denied and other matters need not be considered. Moreover, because we have found TBF unqualified, the settlement agreement, which is
51
Federal Communications Commission FCC 98- 313
52
premised on the grant of TBF's application must be rejected. (Because Glendale's application would be dismissed under the settlement, Glendale's qualifications are not relevant to whether
the settlement can be approved.) We will, therefore, deny the Joint Requests for Approval of Settlement Agreement now before us. However, since we have also found that the loss of station
WHFT( TV) is a sufficient deterrent to future misconduct by TBN- related entities, the parties may submit an amended settlement covering the stations other than WHFT( TV). Without
expressing any view on whether such a settlement agreement would be approved by the Commission, TBF's disqualification in this proceeding would be no bar to approval of any such
settlement insofar as the settlement otherwise complies with all of our rules and policies.
VII. ORDERING CLAUSES
129. ACCORDINGLY, IT IS ORDERED, That, good cause having been shown, Consent Motions for Extension of Time, filed August 28, 1996, September 23, 1996, September
30, 1996, October 11, 1996, and November 21, 1996, by Glendale Broadcasting Company ARE GRANTED.
130. IT IS FURTHER ORDERED, That the Petition of Colby May for Leave to Intervene, to File Comments, and to Participate in Oral Argument, filed November 15, 1996, and
the Request for Leave to File Reply in Support of Petition of Colby May for Leave to Intervene, to File Comments, and to Participate in Oral Argument, filed January 13, 1997 ARE DENIED,
and that the Comments of Intervenor Colby May in Response to Mass Media Bureau's Opposition to Motion to Vacate the Record on Improvidently Designated Issues, filed November
15, 1996, ARE ACCEPTED as an amicus brief.
131. IT IS FURTHER ORDERED, That the Request of National Minority T. V., Inc. for Leave to Reply to Opposition to Motion to Vacate, filed December 5, 1996, and the Request for
Leave to File Reply Comments of Intervenor Colby May, filed January 13, 1997, ARE GRANTED, and the Motion to Vacate the Record on Improvidently Designated Issues, filed
August 20, 1996 by Trinity Broadcasting of Florida, Inc, and Trinity Broadcasting Network, IS DENIED.
132. IT IS FURTHER ORDERED, That oral argument being unnecessary for the resolution of the matters before us, the Requests for Oral Argument, filed January 23, 1996, by
Trinity Broadcasting of Florida, Inc, and Trinity Broadcasting Network, and February 28, 1996, by The Spanish American League Against Discrimination, ARE DENIED.
133. IT IS FURTHER ORDERED, That the Initial Decision of Administrative Law Judge Joseph Chachkin, FCC 95D- 13 (Nov. 6, 1995) (10 FCC Rcd 12020) IS AFFIRMED in
part and REVERSED in part, the application of Trinity Broadcasting of Florida, Inc. (File No.
52
Federal Communications Commission FCC 98- 313
53
BRACT- 911001LY) IS DENIED, and the application of Glendale Broadcasting Company (File No. BPCT- 911227KE) IS DENIED.
134. IT IS FURTHER ORDERED, That (1) the Joint Request for Approval of Settlement Agreement, filed April 13, 1998, by Glendale Broadcasting Company, Maravillas
Broadcasting Company, Trinity Broadcasting of Florida, Inc., Trinity Christian Center of Santa Ana, Inc., Trinity Broadcasting of New York, Inc., and National Minority T. V., Inc., (2) the
Joint Request for Approval of Settlement Agreement, filed April 13, 1998, by The Spanish American League Against Discrimination, Trinity Broadcasting Network, Trinity Broadcasting
of Florida, Inc., and National Minority T. V., Inc, (3) the Joint Request for Approval of Settlement Agreement, filed April 13, 1998, by the California State Conference of Branches of
the NAACP, the Alaska/ Oregon/ Washington State Conference of Branches of the NAACP, Trinity Broadcasting Network, and National Minority TV, and (4) the Joint Request for
Approval of Settlement Agreement, filed April 13, 1998, by the Spanish American League Against Discrimination, Trinity Broadcasting Network , Trinity Broadcasting of Florida, Inc.,
and National Minority T. V., Inc. ARE DENIED and the associated settlement agreements ARE REJECTED.
135. IT IS FURTHER ORDERED, that this proceeding IS TERMINATED.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas Secretary
53
Federal Communications Commission FCC 98- 313
54
JOINT SEPARATE STATEMENT OF CHAIRMAN WILLIAM E. KENNARD AND COMMISSIONER GLORIA TRISTANI
The Commission has adopted a decision denying renewal of Trinity Broadcasting Network of Florida, Inc. for Station WHFT( TV) in Miami, Florida. We believe that this action
is amply justified by the record in this proceeding, which shows that the principals of the licensee and its affiliate, Trinity Broadcasting Network, abused the Commission's minority
ownership policies. That record demonstrates that Trinity formed an entity called National Minority TV, Inc. (NMTV) to acquire television authorizations as a minority- controlled
applicant under provisions of the multiple ownership rules then in effect. The record further demonstrates that NMTV was not, in fact, minority- controlled but was actually controlled by
Trinity and its principals, who concealed from the Commission the facts indicating that NMTV subverted the purposes of the minority ownership rules.
Our action underscores that the Commission will not countenance the abuse of its rules and policies. We have labored hard to ensure the creation of a national telecommunications
system that serves the public interest to the fullest extent possible. We will not permit the public interest to be undermined by those who refuse to comply with the letter and spirit of our rules
and policies. In particular, it is critically important for the Commission to protect the integrity of our rules and policies designed to promote the participation by people of all backgrounds in
broadcasting. Those who believe, as we do, that the Commission should advance policies to promote participation by minorities and women in the broadcast industry, have an obligation to
safeguard the integrity of those policies by enforcing against abuses and shams. Our intent in enacting these rules and policies has been to create real opportunities for those who, for too long,
have been unjustly excluded from participation. We are pleased that the Commission has acted decisively to reaffirm that our minority ownership rules will serve this worthy goal and will not
be used for the advantage of those not entitled to benefit by them.
54
5
Federal Communications Commission FCC 98- 313
STATEMENT OF COMMISSIONERS HAROLD W. FURCHTGOTT- ROTH AND MICHAEL K. POWELL, DISSENTING IN PART
In re: Trinity Broadcasting of Florida, Inc., Miami, Florida, MM Docket No. 93- 75
We respectfully dissent from the Commission’s finding that Trinity Broadcasting of Florida, Inc. (" TBF"), is "unqualified" to hold the license to operate television station WHFT.
We are not persuaded that the finding of abuse of process that underlies this disqualification is warranted. Specifically, we take issue with two key conclusions in this Order. First, assuming
that TBF's parent company, Trinity Broadcasting Network (" TBN") actually exercised de facto control of National Minority TV, Inc. (" NMTV"), we do not think that the legal definition of
"minority- controlled" under the multiple ownership exception unambiguously included a de facto element applicable to NMTV. Second, we are not persuaded that the evidentiary record in
this proceeding shows that TBN and its principals specifically intended in these full power television applications to deceive the Commission about control of NMTV.
As this Order acknowledges, our precedent clearly requires proof of a "specific intent to deceive" the Commission in order to make a finding of abuse of process. 26 Our precedent
teaches that this "is not an easy matter to prove." 27 Today's decision finds an abuse of process on the basis of a record that shows, at most, legal uncertainty on the part of TBN's principals
concerning the company’s disclosure obligation and NMTV's status as a minority- controlled company. Such uncertainty, however, is quite a different thing from a particularized intent to
deceive the Commission about the "true" facts of NMTV's situation and thereby willfully abuse its process. 28
26 See Order at para. 83 (citing Evansville Skywave, Inc., 7 FCC Rcd 1699, 1702 n. 10
(1992)).
27 WWOR- TV, Inc., 7 FCC Rcd 636, 638 (1992) (internal quotation omitted).
28 We emphasize that the finding of abuse of process is based on the assumption that
TBF was affirmatively required to disclose the details of the relationship between NMTV and TBN in its initial application. There is no indication on this record that the parties failed to
provide relevant information once the staff requested it; indeed, the record shows that TBN subsequently disclosed the additional facts regarding "control" upon which the Commission
today relies. See Order at paras. 94- 95. In this regard, the Order imposes an unduly high burden of initial disclosure upon applicants. See id. at para. 95 (rejecting subsequent disclosure as
curative because TBN did not "[ take] the initiative" to do so and because disclosure occurred as a response to questions asked by Commission staff). By making the validity of subsequent
disclosures turn on the reason why disclosure was made, the Order distorts what ought to be the real issue, i. e., whether disclosure was made.
55
5
Federal Communications Commission FCC 98- 313
I.
Today's Order asserts “that Commission rules and precedent have always given fair notice that de facto control is required to take advantage of the special provision concerning
minority ownership in the multiple ownership rules.” 29 Close examination of the relevant legal sources, however, reveals that this assertion is unsustainable. There was at least some ambiguity
on this score in the multiple ownership rules. 30 In similar circumstances, the Commission has given the benefit of the doubt to the licensee. See Fox Television Stations, Inc., 10 FCC Rcd
8452 (1995) (exonerating party of allegations of misrepresentation and lack of candor on grounds of party's reliance upon advice of counsel and unclear state of relevant law). We would
follow that precedent here.
Much like the situation in Fox Television, counsel for TBN advised its client that, for purposes of the television applications, NMTV was “minority- controlled” within the meaning of
the rule. This position was based on the fact that two- thirds of the members of NMTV's board of directors were minorities. Counsel could well have based this advice on a strict reading of the
definition of “minority- controlled” in Section 73.3555( e)( 3)( iii). That section provided that: “Minority- controlled means more than 50 percent owned by one or more members of a minority
group.” One could rationally interpret that definition to adopt an exclusively de jure test for minority- controlled: the existence of "control" would be determined by an objective percentage
formula. Indeed, given that nothing in the text of the language mentions any de facto element of the definition, that would be a natural reading of the rule.
Moreover, language in the Multiple Ownership Order adopting the rule supports this reading of section 73.3555( e)( 3)( iii). In that Order, the Commission explained that it was
“adopting rules today which permit group owners of television and radio stations to utilize a maximum numerical cap of 14 stations provided that at least two of the stations in which they
hold cognizable interests are minority controlled.” 31 The Commission continued:
29 Order at para. 86.
30 Indeed, the Mass Media Bureau Trial Staff initially came to the same conclusion. See
Mass Media Bureau Proposed Findings of Fact & Conclusions of Law, at 159.
31 Amendment to Section 73.3555 of the Commission’s Rules Relating to Multiple
Ownership of AM, FM, and Television Broadcast Stations, 100 FCC 2d 74, 94 (1985) (herein after “Multiple Ownership Order”).
56
5
Federal Communications Commission FCC 98- 313
A question arises as to the proper definition of a minority owned station for the purposes of our multiple ownership rules. In this regard, we note that the Commission has adopted
different standards of minority control depending on the mechanism used to foster its minority policies. In the context of multiple ownership policies, we believe that a greater
than 50 percent minority ownership interest is an appropriate and meaningful standard for permitting increases to the rules adopted herein. 32
This passage represents the Multiple Ownership Order’s entire discussion of the definitional issue. Nothing in its language suggests that the Commission intended to apply a de facto control
test in addition to the 50 percent test. Notably, the dissenting statement of Commissioner Dennis Patrick asserted -- without provoking any rebuttal -- that “[ n] o concern is given as to whether the
51% majority owners will exert any influence on the station’s programming or will have any control at all.” 33 Thus, the Multiple Ownership Order and the definition of minority control that
it adopted could reasonably be read to indicate that applicants need only demonstrate de jure control, i. e., greater than 50 percent minority ownership.
In deciding to disqualify NMTV, this Order does not admit of any ambiguity with respect to the applicability of the element of de facto control to TBN's application. Instead, the Order
asserts that a note appended to the multiple ownership rule makes clear that NMTV was required to prove actual control in addition to 51% percent minority ownership. 34 We are unconvinced
that the presence of this note in section 73.3555 is sufficient to overcome the language of either the actual rule on “minority- controlled” or the Multiple Ownership Order regarding the
existence of a de facto control test.
First, it is not clear that Note 1 applies to the definition of “minority- controlled” at all. Note 1 is appended to all of section 73.3555, not subsection 73.3555( e)( 3)( iii) in particular. One
thus could reasonably assume that the administrative gloss in Note 1 applies to those instances in section 73.3555 in which “control” is not otherwise defined, such as the TV duopoly rule. 35 It is,
in fact, awkward to layer Note 1's explanation of "control" on top of the separate definition of
32 100 FCC 2d at 95 (footnotes omitted) (emphasis added).
33 Id. at 104. While Commissioner Patrick's interpretation of the Order is of course not
binding in any legal sense, it is nonetheless probative of the meaning of the Order. At a minimum, it shows that reasonable people such as the Commissioner could have read the Order
and related rule as adopting a straight percentage test for companies that met the 51% level.
34 Order at para. 86.
35 See 47 C. F. R. section 73.3555( e)( 1).
57
5
Federal Communications Commission FCC 98- 313
“minority- controlled” in subsection 73.3555( e)( 3)( iii); indeed, the definitional part of that regulation never uses the term “control.” Moreover, the statements in subsection
73.355( e)( 3)( iii) and the Multiple Ownership Order regarding the definition of minority control might colorably be thought to outweigh this addendum on the scale of legal authority. 36
Even if Note 1 governed the meaning of “minority- controlled,” the text of the note can not bear the weight with which the majority saddles it. Note 1 states that "the word 'control' as
used herein is not limited to majority stock ownership, but includes actual working control." (emphasis added). This language does not necessarily reflect an intent to "prevent licensees
from circumventing the limitations imposed by the multiple ownership rules by exercising actual control over stations over which they did not have legal control." 37 Rather, it could well be
understood to manifest an attempt to explain that "control" can mean majority stock ownership, but that it can also mean actual working control, as determined on a case- by- case basis. That is,
the Note could plausibly be interpreted to mean that if an entity fails the 51% ownership test, but can nevertheless show that minorities exercise actual working control over the entity, that entity
would still qualify as minority- controlled. A 51% equity interest was thus a proxy for control, but control could also be demonstrated on a fact- specific, case- by- case basis where that test was
not met. That is not the same thing, however, as requiring the application of a fact- specific, de facto control analysis in all cases. 38
Next, the Commission argues that agency precedent "has always required minorities to exercise de facto control over 'minority- controlled' stations" and suggests that the Commission
36 Cf. Laurens Walker, Writings on the Margin of American Law: Committee Notes,
Comments, and Commentary, 29 Ga. L. Rev. 993, 994 (1995) (arguing that "courts should assign little, if any, weight to these examples of gloss").
37 Order at para. 86.
38 The Order’s reliance on Southwest Texas Public Broadcasting Council, 85 FCC 2d
713 (1981), see Order at para. 86, is also misplaced. That decision sets forth a definition of "control" that is limited by its terms to the "determin[ ation] whether an unauthorized transfer of
control has occurred" under section 310( d) of the Communications Act. 85 FCC 2d at 715. As the quoted sentence states in full, "[ s] ection 310( d) contemplates every form of control, actual or
legal, direct or indirect, negative or affirmative, over basic operating policies." Id. (emphasis added). That statutory provision is not at issue here. Moreover, it stands to reason that in the
context of unauthorized transfers the test for control might be exclusively de facto. Unauthorized transfers of control are rarely effected by overt, recorded acts like the transfer of
stock; they are, by definition, sub rosa, a fact that practically requires the Commission to look beyond legal ownership.
58
5
Federal Communications Commission FCC 98- 313
meant to follow this precedent in the Multiple Ownership Order by "mak[ ing] specific reference" to the 1982 Policy Statement on Minority Ownership in Broadcasting. 39 Neither claim is borne
out by the relevant documents.
We take the last point -- that the Commission intended to adhere to the "traditional" definition of minority controlled when it adopted the ownership preference -- first. The 1982
Policy Statement, upon which today's decision relies as proof of such adherence, was merely cited in a footnote. The footnote followed this sentence: "We note that the Commission has
adopted different standards of minority control depending on the mechanism used to foster its minority policies." 40 The Commission reads too much into the fact of this citation. To be sure,
the Multiple Ownership Order specifically referred to the Policy Statement, but only as an example of the varying definitions of minority- controlled in FCC administrative law. There is
no indication that this citation was meant to incorporate the Statement's definition of minority-controlled into the ownership exemption rules. That citation thus provides no substantive pass-through
to either the Policy Statement or the 1978 Policy Statement quoted therein. In fact, immediately after citing the 1982 Policy Statement, the Multiple Ownership Order went on to
adopt an apparently independent standard based on the different "mechanism" at issue: "In the context of the multiple ownership policies, we believe that a greater than 50 percent minority
ownership interest is an appropriate and meaningful standard." 41 The citation to the 1982 Statement serves to establish a contrast to the rule that the Commission actually adopted in the
Multiple Ownership item, not a corollary. The "meaningful standard" that the Multiple Ownership Commission adopted was, in its own words, a "greater than 50 percent minority
ownership interest" standard, not the standard of the 1982 Policy Statement. 42
In any event, close examination of the 1982 Policy Statement on Minority Ownership in Broadcasting, 43 which this Order cites as evidence that “Commission precedent has always
required minorities to exercise de facto control over 'minority- controlled' stations,” 44 leads one to
39 Order at para. 87.
40 100 FCC Rcd at para. 46.
41 Id.
42 Cf. Order at para. 87 n. 17 (asserting that "the Commission clearly intended to
establish a 'meaningful standard' of control to ensure that minorities had actual control over the stations benefiting from its minority ownership policies").
43 92 FCC 2d 849 (1982).
44 Order at para 87.
59
6
Federal Communications Commission FCC 98- 313
doubt, not to embrace, that proposition. Minority Ownership in Broadcasting presented the Commission’s policy statement on minority tax certificates. In paragraph 7 of that statement, the
Commission indicated that entities would be deemed qualified for tax certificates “where the minority ownership interest in the entity exceeded fifty percent or was controlling.” 45 The
paragraph does not state that minority interests must uniformly demonstrate actual control -- over and above satisfaction of the ownership percentage test -- in order to receive a preference.
To read it that way is to ignore the clear disjunctive nature of the sentence.
Nor does paragraph 16 make such a statement. Although that paragraph indicates that control is a factor in issuing tax certificates, it does not clearly require parties affirmatively to
show de facto control in all circumstances in order to claim a minority benefit. 46 Notably, the sentence in question refers to "minority ownership of and control in the entity below 51
percent." 47 Reading "control" independently of "minority ownership" -- as the Order does by emphasizing the word "and" 48 -- makes no grammatical sense; it produces the odd phrase
"control in the entity below 51 percent." The less strained reading of this language is that "control in the entity" refers back to the proxy of a 51% ownership interest. In other words,
minority ownership of 51%, which in turn establishes control, should not be diminished by the transaction.
Finally, William M. Barnard 49 does not bolster the Order's contention that de facto control has always been a general requirement for a finding of "minority- controlled." That case
involved the granting of a tax certificate notwithstanding the fact that the minority ownership interest in the beneficiary entity was less than 51% -- specifically, 45.5%. It thus does not
support the proposition that actual control is a general requirement for a finding of "minority-controlled." To the contrary, it indicates that, where the ownership interest is less than 51%, the
Commission under its "traditional" approach will apply a de facto test in order to save the entity from automatic disqualification for minority- controlled status. More specifically, this case is
45 92 FCC 2d at 853 (emphasis added).
46 For this reason, it is not surprising that the Multiple Ownership Order cited paragraph
16 only for the proposition that the Commission “has adopted different standards of minority control depending on the mechanism used to foster its minority policies, ”as discussed above.
47 Id. at 857.
48 Order at para. 90.
49 44 RR 2d 525 (1978) (cited in Order at para. 89).
60
6
Federal Communications Commission FCC 98- 313
about "the unique nature of limited partnerships," for that was the factor that caused the Commission to find "sufficient minority involvement" to warrant "issuance of a tax certificate"
even though the percentage test was not met. 50 Even if the case applied to section 73.3555( e)( 3)( iii), 51 that still would not mean that a de facto control test governed TBN's
application, in which there was no question of failure to meet the percentage test.
In short, we find unpersuasive the evidence marshaled in the Order to show that Commission rules, notes, or precedent clearly required NMTV to make an affirmative de facto
showing in its application. A reasonable attorney, as well as a reasonable layperson, might have read the regulation without being on clear notice that the minority control test included any such
element in the context of the multiple ownership exemption. It certainly did not make clear that a de facto control showing was necessary when the percentage test was satisfied. In light of the
foregoing, we cannot find that TBN's failure to make an initial and affirmative showing of de facto control constituted an abuse of process.
II.
The evidence cited in the Order to show that the principals of TBN may have been "aware that" NMTV's compliance with section 73.3555( e)( 3)( iii) was "doubtful" 52 is insufficient
to show that they possessed the requisite intent to deceive. At best, such evidence shows some amount of reservation about NMTV's technical status. But that is often the case in the legal
arena, especially where, as here, an agency adopts different tests for different purposes. Notably, the only direct testimony in this record on the question of intent is that the principals believed
that, notwithstanding TBN's interaction with NMTV, the nature of that relationship would not raise legal problems relating to de facto control so long as other practices to promote NMTV's
independence were followed. 53
50 92 FCC 2d at para. 8.
51 Barnard involved the interpretation and application of the 1978 Policy Statement on
minority ownership. As explained above, the Multiple Ownership Order never incorporated the definitional rule of the 1982 Policy Statement, much less that of the 1978 Policy Statement discussed
in the 1982 Statement. The relevance of this case to the meaning of section 73.3555( e)( 3)( iii) is thus difficult to see.
52 Order at para.. 91; see also id. at para. 94 (faulting application for "not acknowledg[ ing]
that there is even a question of whether NMTV should be deemed minority controlled") (emphasis added); id. at para. 83 (concluding that the “claim of minority control was at best doubtful”).
53 Transcript at 3206, 3226, 3228, 3399- 401, 3604.
61
6
Federal Communications Commission FCC 98- 313
In rejecting this direct testimony as to intent, today's decision states that the opinion of TBN counsel that NMTV qualified as minority- controlled "does not reflect a reasonable
interpretation of Commission policy." 54 Given our analysis in Part I of the regulations in effect when the application was filed, we cannot say that this belief was unreasonable or clearly
erroneous under the circumstances.
Moreover, the reasonableness of a party's belief is not the issue here. For abuse of process determinations, the relevant question is whether the party possessed a specific intent to
deceive. Even if the definition of "minority- controlled" under the multiple ownership rules was unambiguous at the time of NMTV’s filing (which, as explained above, it was not), that does not
establish that TBN specifically intended to deceive the Commission about matters relating to control of NMTV. The clarity of the law is not probative of the filers' intent. From the
proposition that the Commission provided clear notice of a de facto control test, one might deduce, as an objective matter, that TBN should have known of the de facto control requirement.
But that proposition tells us nothing about the subjective state of mind of TBN's principals (the essence of an intent standard) or what they actually knew. What a reasonable person should
have known is not necessarily what a particular person knew. And abuse of process is not an objective question but a subjective one.
The Order's conclusions about intent, however, are based on speculation about what the majority feels the principals must have known, not on proof of what the principals did know. As
discussed above, the Order's rejection of TBN counsel's direct testimony is based only on the "reasonableness" of that view, not on any evidence that he actually knew that NMTV did not
meet the relevant tests and consciously endeavored to hide that from the Commission. Similarly, the Order asserts that TBN principal "Crouch. . . could not have been unaware that he dominated
NMTV, that NMTV was not truly independent of TBN, and that there was no basis to claim otherwise." 55 Yet the Order points to no proof that he was aware of those things, or that he
intentionally withheld those facts in order to perpetrate a fraud on the Commission. Whether the Commission finds the principals' belief that they had complied with the relevant rules to be with
or "without foundation," 56 the point is what the parties actually and specifically intended. On this score, the item adduces scant evidence.
In search of evidence on the intent question, the Order relies on a provision in one of
54 Order at para. 92.
55 Id.
56 Id.
62
6
Federal Communications Commission FCC 98- 313
TBN's purchase contracts that conditioned the contract on NMTV's compliance with the minority control rule. 57 It is commonplace, however, for commercial contracts to be conditioned on
regulatory compliance or approval; such conditions are no admission of a subjective belief that the matters in question indeed fail to satisfy the relevant regulatory requirements. 58 Again, what
this provision reflects is, at most, some lack of certitude about NMTV's status as a "minority-controlled" company within the meaning of the regulation. And again, this is not at all
surprising given the case- by- case, fact- specific, multi- factored nature of the legal determination of de facto control -- if the parties even knew that was the test. Whatever its probative force, this
contractual language is certainly not enough, in our view, to overcome the direct record testimony on intent given by the principals.
Finally, the Order suggests that the novelty of the question presented (the meaning of section 73.3555( e)( 3)( iii) as applied to a nonprofit public charity) at the time of TBN's filing
increased its burden of initial disclosure. This sword of an argument is double- edged, however. It could just as readily cut in favor of TBN on the intent question. 59 The fact that "the
Commission had never before applied the provision to an arrangement" 60 such as NMTV's means that there was no precedent to guide the applicants in their filing. Notice therefore was
less, not more, clear than the Commission argues it was. In light of the novelty of the issue, any failure by TBN to disclose certain information might seem less the product of an intent to
deceive than of lack of guidance on the meaning of "minority- controlled" under the ownership exemption.
In short, the evidence adduced by the Commission does not persuade us that TBN possessed a specific intent to deceive the Commission with respect to control of NMTV, and we
are aware of no other record evidence that demonstrates such intent. While intent to deceive certainly can be proven by circumstantial as opposed to direct evidence, the amount of
circumstantial evidence of intent to deceive here is not particularly substantial. The only direct evidence on this issue is that the parties did not mean to deceive the Commission. On such a
record, a finding of abuse of process is unwarranted.
* * *
57 Id. at para. 93 & n. 21.
58 Id. at para. 92.
59 The argument also contradicts the majority's earlier contention that the "traditional"
definition of minority- controlled applied in the multiple ownership context. If that were true, then precedent on the meaning of section 73.3555 as applied to this case indeed would have existed.
60 Id. at para. 93.
63
6
Federal Communications Commission FCC 98- 313
To conclude, we think this Order errs in asserting that TBN was on clear notice of the applicability of a de facto control showing to its applications. We further believe that the record
evidence in this proceeding is not sufficient to prove a specific intent to deceive the Commission. In these circumstances, we find that imposition of the “death penalty” of disqualification is both
unfair and unwarranted.
64