As Amended on Denial of Rehearing and Rehearing En Banc January 12, 1979.
Certiorari Dismissed May 17, 1979. See 99 S.Ct. 2189.
Opinion for the Court filed by Circuit Judge WILKEY.
OUTLINE OF OPINION Page I. ISSUES IN COMPARATIVE RENEWAL PROCEEDINGS, PAST AND PRESENT ..................................... 40 II. THE COURSE OF THE LITIGATION ........................... 44 A.The Initial Decision ................................ 45 1.Designated Issues ................................ 45 a. The Main Studio Move .......................... 45 b. Mail Fraud .................................... 45 2.Standard Comparative Issues ...................... 46 a. Diversification of Media Ownership ............ 46 b. Best Practicable Service ...................... 46 (1) Integration of Ownership and Management ... 46 (2) Cowles' Past Service ...................... 47 c. The Public Interest Finding on the Two Standard Comparative Issues ........................... 47 B.The Commission Decision ............................. 47 III. ANALYSIS ............................................... 49 A.The Designated Issues ............................... 51 1.The Main Studio Move ............................. 51 2.The Mail Fraud Issue ............................. 52 B.Standard Comparative Issues ......................... 53 1.Diversification .................................. 53 2.Best Practicable Service ......................... 54 a. Integration ................................... 55 b. Cowles' Past Performance ...................... 56 IV. CONCLUSION ............................................. 58 [OPINION ON PETITION FOR REHEARING PAGE 58]
WILKEY, Circuit Judge:
Appellant, Central Florida Enterprises, Inc. (Central), appeals a decision and accompanying orders by the Federal Communications Commission (Commission) denying its application for a construction permit for a new commercial television station to operate on Channel 2 in Daytona Beach, Florida, and granting the mutually exclusive application for renewal of license to Intervenor Cowles Florida Broadcasting, Inc. (Cowles).
I. ISSUES IN COMPARATIVE RENEWAL PROCEEDINGS, PAST AND PRESENT
What is at issue here is the validity of the process by which the competing applications of Central and Cowles were compared and the adequacy of the Commission's articulated rationale for its choosing to renew Cowles' license. This may well be a typical comparative renewal case, hence the careful scrutiny we give the Commission's procedure and rationale herein.
Comparative analysis is implicit in any scheme of allocation and has always been at least formally a consideration in broadcast licensing. The procedural setting for such a comparative review is the licensing hearing provided by Section 309(e) of the Communications Act.
Although Ashbacker dealt with two original applications, this court and the Commission have consistently held that the doctrine governs renewal proceedings as well.
A less tractable matter has been the question of the substantive criteria to assure
The applicability of the Commission's usual comparative criteria to comparative renewal proceedings has been uncertain. The fact of incumbency without more would appear legally irrelevant under the statute.
Despite the apparent statutory assurance of a freewheeling inquiry into the relative merit of challenger and incumbent licensee, the history of Commission practice reveals a strong preference for renewal.
We did note the relevance of the incumbent's past performance:
Despite the language in Citizens, it is fair to say that the law governing comparative renewal proceedings remained unclear. Although Ashbacker had said a challenger could not be denied a hearing and Citizens apparently assured some kind of substantive comparison, the nature of the inquiry and the pertinence of "renewal expectancies" was left uncertain.
As an original matter, of course, a "renewal expectancy" could be shorthand for any of several plausible theories of the public interest standard contained in section 309. For example, expectations could be confined to the likelihood that an incumbent would prevail under the customary 1965 criteria without any special regard for the quality of its past performance one way or the other. It would hardly be sensible, however, to ignore the past, for it affords the "best evidence" of what the incumbent's future performance will be, and it has never been the Commission's practice to do so. Conceding therefore, that an incumbent's past performance is highly relevant, an incumbent with a meritorious record would possess a natural advantage insofar as its actual performance made its proposals more credible than the "paper promises" of a challenger. Some such comparative assessment of likely performances would, in fact, seem inescapable. It would then follow naturally from discounting the promises of challengers that incumbents would prevail more often, thereby assuring more "continuity" in the industry. The certainty thus afforded a meritorious incumbent through its natural comparative advantage may in turn induce it to commit enough resources to perpetuate its quality of service. An expectation raised by the probability of prevailing in the overall inquiry is, of course, fully compatible with the comparison assured by section 309.
We understand the Commission's present idea of renewal expectancies may be more expansive — that an "expectancy" may be generated by something less than or different from more meritorious service. An incumbent is said entitled to expect renewal if it has "served the public interest in . . a substantial manner." Apparently, a "substantial" past record would be a factor weighed in the incumbent's favor irrespective of which applicant were predicted to perform better in the future. Such an entitlement would be provided to promote security directly and to induce investment which otherwise may not be made. Whether and in what manner placing such a thumb on the balance in an otherwise comparative inquiry may be reasonable are, we think, open and difficult questions.
In a number of cases before and after Citizens this court has had occasion to refer to renewal expectancies without much inquiry into the notion's content. Thus, in dictum in Greater Boston Television Corp. v. FCC, we observed there were "legitimate renewal expectancies implicit in the structure of the Act." We said that "such expectancies are provided in order to promote security of tenure and to induce efforts and investments, furthering the public interest.
Finally, last term the Supreme Court observed, in the context of reviewing the FCC's regulations barring certain newspaper-broadcast combinations, that industry stability has consistently been a concern in comparative renewal proceedings. It said:
Thus, although not a precise concept, renewal expectancies derived from "meritorious service" (to use the Supreme Court's terminology) are a natural aspect of the public interest inquiry carried on under section 309(e). Moreover, "the weighing of policies under the `public interest' standard is a task that Congress has delegated to the Commission in the first instance."
II. THE COURSE OF THE LITIGATION
Intervenor Cowles has operated its station, WESH-TV, on Channel 2 in Daytona Beach since it purchased the station in 1966. On 31 October 1969 Cowles filed its application for renewal of license. Central submitted its competing application for a construction permit for a new television station to operate on the same channel on 2 January 1970. The two applications were set for hearing by Commission order released 10 March 1971, and redesignated by orders released 20 August 1971 and 24 February 1972.
In addition to inquiry into diversification of media ownership and "best practicable service," which comprise the customary comparative issues, certain special issues were designated for hearing. These were (a) whether contrary to Commission regulation, Cowles had moved its main studio without prior Commission approval; and (b) whether alleged mail fraud by five related corporations supported inferences adverse to Cowles' character.
The facts in this case are essentially undisputed, and will be recounted only incidentally to our review of the Commission's decision.
A. The Initial Decision
1. Designated Issues.
a. The Main Studio Move
Commission rules require that "[t]he main studio of a television broadcast station shall be located in the principal community to be served."
Still, the ALJ found "inescapably" that "Cowles treats its Winter Park [Orlando] facility as its principal place of business."
b. Mail Fraud
Cowles is a wholly owned subsidiary of Cowles Communications, Inc., (CCI). During the license period CCI also published Look Magazine and owned five other subsidiaries, each in the business of obtaining magazine subscriptions. The five subsidiaries conducted so-called "paid during service" (PDS) operations in which subscribers paid installments of the purchase price over the life of the subscription.
After a few years, complaints arose of improper sales and collection practices by the PDS companies. When CCI became aware of the problem, it promulgated a code of practice for the subsidiaries to cure the abuses. Despite these efforts, the practices continued and by the fall of 1969 the PDS companies were under investigation by various state and federal agencies. In 1970, after being informed that the Justice Department intended to investigate the entire PDS industry, CCI initiated negotiations which resulted in nolo contendere pleas by the five PDS subsidiaries to fifty counts of mail fraud, and a consent decree against the five companies, guaranteed by CCI, enjoining specific sales and collection practices.
With respect to Cowles' parent, CCI, the ALJ reached conclusions that he characterized as "harsh."
The ALJ concluded, however, that Cowles was insulated from these "harsh" findings
On the two specially designated issues, the main studio move and the mail fraud inquiry, by the ALJ's reasoning Cowles escaped unscathed.
2. Standard Comparative Issues.
a. Diversification of Media Ownership
The ALJ concluded that "the advantage lies with Central" under the diversification factor because it had "no connection of any sort with any other mass media outlet."
The ALJ then concluded that although Central's advantage was "clear," it would not be "compelling" unless Central were shown likely to render public service "at least as good" as that of Cowles.
b. Best Practicable Service
Under the criterion of "best practicable service" the ALJ made findings with respect to two matters: (1) Central's proposals regarding the participation of owners in the station management; and (2) the quality of Cowles' past service.
(1) Integration of Ownership and Management
The ALJ found Central's integration proposals to be "very weak," and concluded that Central's owners would probably not play more than a nominal role in station
The ALJ conceded several of Central stockholders would participate in management on a part-time basis, primarily as consultants, but noted that little weight attached to such participation under the Policy Statement. In his view, part-time contributions by those who are"essentially dilletantes" rarely has a material effect on overall station operations.
(2) Cowles Past Service
The ALJ found that Cowles' past performance had been "thoroughly acceptable."
c. The Public Interest Finding on the Two Standard Comparative Issues
In the end, the ALJ concluded that Cowles merited a "distinct preference" under the best practicable service criterion and that that preference outweighed Central's preference under the diversification criterion. The ALJ reasoned that absent a showing that the degree of industry concentration which had existed when Cowles was originally licensed had "actually disserved the public interest," the more compelling objective was obtaining the best practicable service.
B. The Commission Decision.
The Commission affirmed the decision of the ALJ with certain modifications. It concluded that the ALJ had correctly disposed of the main studio issue.
The Commission sustained the ALJ again with respect to the mail fraud issue, finding he had properly refused "to impart decisional significance" to the evidence of wrong-doing. Inasmuch as Cowles was not shown to be implicated in the PDS practices and there appeared to be no criminal case against CCI or its personnel, the Commission declined "to attribute the sins of the PDS's to CCI and then visit them on Cowles' head."
Again, by the Commission's reasoning on the two specially designated issues, Cowles lost no ground. The Commission then turned to the two standard issues, diversification and service.
Reviewing the ALJ's treatment of the diversification issue, the Commission affirmed the award of a preference, finding Central's advantage "clear."
The ALJ's conclusions with respect to the best practicable service issue were modified in light of this court's TV-9 decision
Finally, the Commission revised the ALJ's characterization of Cowles' record as "thoroughly acceptable." Finding this phrase "too vague to be meaningful," and not adequately expressing "the outstanding quality of Cowles' past performance," the Commission found that performance to have been "superior" in the sense in which we used the word in our Citizens opinion — "justifying a plus of major significance," and inferentially, supporting an expectation of renewal.
The Commission thus articulated the final and decisive tally:
III. ANALYSIS
The function of this court in reviewing a Commission decision is, as we have often recounted, a fairly limited one. This is particularly the case when the Commission acts under its broad mandate to license in the public interest. However, within the constraints upon our review, we must insist on adherence to those principles which assure the rule of law. Thus we must be satisfied that the agency has given reasoned consideration to all the material facts and issues;
With this preface, we hold that the Commission acted unreasonably and without substantial record support in this matter and we remand for further proceedings.
The Commission's rationale in this case is thoroughly unsatisfying. The Commission purported to be conducting a full hearing whose content is governed by the 1965 Policy Statement. It found favorably
The Commission's treatment of the standard comparative issues — diversification of media ownership and best practicable service — is the most worrisome aspect of this case. The Commission plainly disfavors use of the 1965 criteria in comparative renewal proceedings. This in turn is largely because the Commission dislikes the idea of comparative renewal proceedings altogether
Since the 1965 Statement admits little room for a presumption of renewal, the Commission has reconstructed the criteria in a manner creating a de facto presumption.
This usual procedure, we believe, although the Commission nowhere tells us, is essentially what occurred here. The development of Commission policy on comparative renewal hearings has now departed sufficiently from the established law, statutory and judicial precedent, that the Commission's handling of the facts of this case make embarrassingly clear that the FCC has practically erected a presumption of renewal that is inconsistent with the full hearing requirement of § 309(e).
A. The Designated Issues.
1. The Main Studio Move.
The Commission was amply supported in its finding that Cowles moved its main studio from Daytona Beach to Orlando, in violation of FCC regulations. The Commission concluded, however, that this violation was mitigated by two factors: (1) the move was not effected in "deliberate definance" of FCC rules; and (2) Central made no showing that service to Daytona had suffered as a result of the de facto move. Consequently, Cowles was given a "slight demerit" for its violation. Apparently even this would overstate the Commission's reaction, for in its original order it appeared to give the violation no weight at all.
Admittedly, the choice of remedies and sanctions for violations of Commission rules "is a matter wherein the Commission has broad discretion."
First, while a showing of harm occasioned by the violation would be relevant to the severity of the sanction imposed, the failure to show injury hardly excuses a plain violation. The regulation here involves a presumption that it is bad to have the main studio located — or slyly relocated — other than in the principal community. The rule would be substantially undercut if a party relying on it were forced in each case to show that the move did in fact injure the quality of service.
Second, we fail to see how Cowles' violation is "mitigated" by the fact that its conduct may not have been nefarious. Obviously Cowles moved its principal operations little by little: and it is well-settled that people are held to intend the obvious consequences of their acts. Further, Cowles is chargeable with knowledge of the main studio regulation. Thus, we are left with an intentional violation of a Commission rule. Of course, if Cowles had acted in bad faith, that might aggravate its violation; but the mere absence of bad faith cannot mitigate it.
On remand, the Commission should reconsider what weight to accord Cowles' plain violation of an FCC rule.
2. The Mail Fraud Issue.
We have two difficulties with the Commission's treatment of the PDS matter. First, it appears from the record that there were at least two persons who were principal officers both of Cowles and of each of the five PDS subsidiaries.
Second, while not unmindful of the time already occupied exploring this matter, we are troubled by appellant's contentions that the inquiry was curtailed in certain material respects. Specifically, Central argues (1) that the ALJ erroneously quashed subpoenas requiring the testimony of the postal inspectors conducting the mail fraud inquiry;
B. Standard Comparative Issues.
1. Diversification.
The effect of the Commission's reconstruction of the diversification criteria is obvious in its belittling of Central's advantage there. Because of its lack of other media interests, as contrasted with those of Cowles, Central was found by the ALJ and the Commission to have a "clear advantage" and was consequently accorded a "clear preference." However, the Commission found that the significance of the "clear preference" was reduced by several factors and that, in the end, the preference was "of little decisional significance."
We fail to see how a "clear preference" on a matter which the Commission itself has called a "factor of primary significance" can fairly be of "little decisional significance." We should have thought the relevance of unconcentrated media ownership to the public interest inquiry was well-settled. We said — and rather plainly said — in Citizens that:
In light of this the Commission itself has stated "whatever policy is developed [in the future] will take into account diversification as a factor that must be considered in a comparative renewal hearing."
Apart from the obvious unfairness of placing this novel burden on Central without fair notice, the question arises whether this has not seriously undercut the utility of the diversification criterion. The brief answer must be that it has.
There is some support for the relevance of the factors on which the Commission relied. The 1965 Policy Statement did say that related media interests within the service area were usually more important than more distant interests.
More troubling still is the Commission's reliance on the autonomy which CCI accorded the local management of Cowles. This, in conjunction with the "remoteness" of CCI's other media interests, led the Commission to conclude that there had been "no adverse effect upon the flow of information to those persons in WESH TV's service area." Further:
The theory that management autonomy may satisfy the function of diversification was wholly novel when presented to this court in Fidelity Television, Inc., v. FCC. There we were faced with a "nothing" applicant "who offers little more and is likely in fact to provide somewhat less than the incumbent."
In any case we are reluctant to expand the relevance of local autonomy much beyond the facts of Fidelity for two reasons. First, the prospect of inquiry into the content of programming as would be entailed in defining "uniform expression" raises serious First Amendment questions.
Summarizing, we conclude that inasmuch as the Commission correctly found that Central's advantage was "clear," it was unreasonable then to accord the diversification finding "little decisional significance." On remand, it will be appropriate for the Commission to reconsider its conclusions in light of the following: (1) the conceded relevance of diversification of media ownership in the comparative renewal context; (2) the materiality of related media interests anywhere in the nation; and (3) the evident hazards of relying on local management autonomy as a surrogate for diversification of media ownership.
2. Best Practicable Service.
Whatever weight the Commission may have given to Central's advantages under the integration and minority participation criteria, it was not enough to "outweigh" Cowles' unexceptional record. This puzzling result appears more bizarre as it is thought about. First we note there was no direct inquiry into whether Central's proposed service would be "superior" or even just "substantial." The Commission rejected that question as too speculative, preferring to rely on those structural characteristics
In a comparative inquiry evidence of past performance is ordinarily relevant only insofar as it predicts whether future performance will be better or worse than that of competing applicants.
In light of this we leave to conjecture what leap of faith would be required to find that Cowles prevailed in the overall inquiry. On remand, the Commission will have to reconsider its manner of deriving a preference under the best practicable service criterion, and if appropriate, how such a preference should be balanced against other factors in the more general public interest inquiry. To avoid, if possible, further appeal in this case, we address ourselves to more specific objections to the disposition of the best practicable service question.
a. Integration
We confess we were unable to make sense of the Commission's treatment of the integration issue, though we will reconstruct its language. The ALJ found that
More troubling is the manner by which Central's integration "preference" became a "merit." In a way wholly analogous to the diversification question, the Commission replaced the customary integration criterion (under which Cowles faired miserably, being absentee-owned by CCI) with a functional inquiry into whether management autonomy had been an adequate surrogate for owner-management.
This further repeal of the 1965 standards again derives some support from our opinion in Fidelity.
b. Cowles' Past Performance
For anyone who remained hopeful that Central's now-shrunken advantages would carry the day, the treatment of Cowles' past performance was plainly the coup de grace. The Commission recharacterized as "superior" the record which the ALJ had found "thoroughly acceptable." Evidently, the Commission felt that a recitation of the idiom in Citizens would permit it to recognize Cowles' "renewal expectancy." If that were correct, we might be more inclined to resist the Commission's characterization.
On remand, the Commission will have occasion to reconsider its characterization of Cowles' past performance and to articulate clearly the manner in which its findings are integrated into the comparative analysis.
IV. CONCLUSION
We remand this case in light of our abiding conviction that the Commission's order is unsupported by the record and the prior law on which it purported to rely. We are especially troubled by the possibility that settled principles of administrative practice may be ignored because of the Commission's insecurity or unhappiness with the substance of the regulatory regime it is charged to enforce. Nothing would be more demoralizing or unsettling of expectations than for drifting administrative adjudications quietly to erode the statutory mandate of the Commission and judicial precedent.
Orders vacated and case remanded for proceedings consistent with this opinion.
On Petition for Rehearing
PER CURIAM.
The FCC and intervenors in this matter seek a rehearing, complaining inter alia that our opinion disregards the "legitimate renewal expectancies implicit in the structure of the [Communications] Act."
The content of the comparative proceeding at issue was governed by the Commission's 1965 Policy Statement;
We set aside the renewal. Our principal reason for doing so was that the Commission's manner of "balancing" its findings was wholly unintelligible,
The dispositive question is, of course, the relevance of the incumbent's past performance. We thought it relevant "only insofar as it predicts whether future performance will be better or worse than that of competing applicants."
However, there is the possibility that an incumbent's meritorious record had literally untold significance. If it were given enough weight (entirely apart from predicting the future), as, for example, to assure industry stability, the incumbent could conceivably prevail even were the challenger otherwise thought the better applicant. There are probably many policies, more or less inferable from the "public interest", which might be balanced together with the predicted quality of programming.
This, we admit, appears at least a plausible construction of the "public interest."
The trouble is, apart from several unenlightening recitals that there are expectations implicit in the Act, there were few intimations that this was the Commission's inchoate rationale.
Since the FCC petition for rehearing displayed a certain agitated concern that our decision in this case would destroy legitimate renewal expectancies of licensees, with baleful commercial consequences and harm to the general public, we thought it relevant to inquire of the Commission as to just how strong those renewal expectancies have been in the past, based on the action actually taken by the Commission and reviewing court.
The history of comparative renewal proceedings since 1 January 1961 (the date from which the data was requested) discloses that incumbents rarely have lost, and then only because they were disqualified on some noncomparative ground. From 1961 to 1978 the Commission has conducted seventeen comparative television license renewal proceedings, seven of which are still pending.
The story is not much different in radio licensing. No license has been denied on a comparative basis.
Plainly, incumbents can "expect" in a statistical sense that their license will be renewed. We doubt that any realistic appraisal of the remand in this single case, calling upon the Commission to perform its duty in accord with its own expressed standards, could reasonably create the nervous apprehension among licensees claimed by the Commission. The only legitimate fear
FootNotes
In our supplemental opinion in TV-9, 161 U.S.App.D.C. at 361, 495 F.2d at 941, we distinguished our use of "merit" from "preference." We explained that the latter term was used "to mean a decision by the Commission that the qualifications of a particular applicant in a comparative hearing are superior to those of another applicant with respect to one or more of the issues upon which the grant of a permit or license turns." Id. n.2. "`Merit' or `favorable consideration,'" we said, "is a recognition by the Commission that a particular applicant has demonstrated certain positive qualities which may but do not necessarily result in a preference." "`Merit,' therefore, is not a `preference' but a plus-factor weighed along with all other relevant factors in determining which applicant is to be awarded the preference." Id.
If the reader is unable to distinguish this modus operandi from prior instances of a renewal presumption attaching to some measure of substantial service, note 59 supra, neither are we.
The Commission elsewhere makes equally erroneous statements of the law, using the language of burden of proof. See 60 F.C.C.2d at 421 ("Central has long known that if it wished to displace Cowles it would have to prove, inter alia, that Cowles' past performance was below average.")
The record shows that John F. Harding was Secretary of Cowles, and the Executive Vice President and General Counsel of CCI. See Initial Decision ¶ 116, J.A. at 116. Additionally, he was a Vice President and the Secretary of Home Reader Service, Inc., J.A. at 716; a Vice President and Secretary of Mutual Readers League, Inc., J.A. at 744; a Vice President and Secretary of Home Reference Library, Inc., J.A. at 784; a Vice President, Secretary and a Director of Civic Reading Club, Inc., J.A. at 820, 823; and a Vice President, Secretary and a Director of Educational Books Club, Inc., J.A. at 873, 876.
1 F.C.C.2d at 394-95 (1965).
62 F.C.C.2d at 958-59 (emphasis added). Although the Commission majority in its clarification, did not expressly find that Cowles' performance was not superior, it did decline to find that it was superior in the sense of being exceptional. 62 F.C.C.2d at 956. It being conceded that Cowles' record was not exceptional, we have no quarrel with the Commission's assessment, which is amply supported. See 60 F.C.C.2d at 421.
The Commission is not unwitting of its error. It has recently recalled (not in a renewal proceeding to be sure) that this court has proscribed just such noncomparative renewal decisions. See Report, supra note 4, ¶ 79, J.A. at 222.
Citizens Communication Center v. FCC, 149 U.S.App.D.C. 419, 420, 463 F.2d 822, 823 (1972), clarifying Citizens Communication Center, 145 U.S.App.D.C. 32, 447 F.2d 1201 (1971). Because the Commission did not purport to find Cowles' performance superior, see note 90 supra, we have no occasion to review its conformance with our second Citizens opinion.
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