In Re Applications of EAST ST. LOUIS BROADCASTING CO., INC., EAST ST. LOUIS, ILLINOIS;
METRO-EAST BROADCASTING, INC., EAST ST. LOUIS, ILLINOIS For Construction Permits
Docket No. 17256 File No. BP-16579; Docket No. 17257 File No. BP-16682
FEDERAL COMMUNICATIONS COMMISSION
29 F.C.C.2d 170
RELEASE-NUMBER: FCC 71-449
May 10, 1971 Released
Adopted April 28, 1971
John H. Midlen, Edward R. Reddy, and Byron E. Harrison, on behalf of East St. Louis Broadcasting Co., Inc.; Marcus Cohn and Robert B. Jacobi, on behalf of Metro-East Broadcasting, Inc.; and P. W. Valicenti, Howard J. Schellenberg, Jr., Margot Polivy and Thomas B. Fitzpatrick, on behalf of the Chief, Broadcast Bureau, Federal Communications Commission.
BY THE COMMISSION: COMMISSIONERS BURCH, CHAIRMAN; AND JOHNSON CONCURRING AND ISSUING STATEMENTS; COMMISSIONER BARTLEY ABSENT; COMMISSIONER HOUSER NOT PARTICIPATING.
[*170] I. BACKGROUND
1. This proceeding involves the mutually exclusive applications of East St. Louis Broadcasting Co., Inc. (East St. Louis) and Metro-East Broadcasting, Inc. (Metro-East), each requesting a construction permit for a new standard broadcast station at East St. Louis, Illinois, to operate on 1490 kHz, 250w., 1kw-LS, U. By Order released March 9, 1967 (FCC 67-284), we designated the applications for hearing on the following issues: (a) to determine whether either applicant will satisfy the coverage requirements of Rule 73.188 and, if not, whether waiver of such rule is warranted, and (b) a standard comparative issue. Subsequently, the Commission's Review Board added issues to determine: (a) whether the East St. Louis stockholders are financially able to meet their respective commitments, (b) the basis of East St. Louis's estimated revenues during the first year of operation, and (c) whether East St. Louis can construct and continue operation of its proposal in the public interest.
2. On January 6, 1969, Hearing Examiner Isadore A. Honig released an Initial Decision (FCC 68 D-74, 19 FCC 2d 300), in which he recommended a grant of the East St. Louis application and denial of the Metro-East application. The Examiner held that waiver of [*171] rule 73.188 is warranted as to both applicants, and that East St. Louis is financially qualified. Deciding the case under the comparative issue, the Examiner concluded that Metro-East is entitled to a substantial preference in diversification of control of the media of mass communications, that East St. Louis merits a moderate preference in integration of ownership with management, and that a substantial demerit should be assessed against Metro-East because of the unusually poor broadcast record of one of its stockholders who is proposed as general manager. n1 Holding that the substantial diversification preference awarded Metro-East is outweighed by the integration preference occurring to East St. Louis and the assessment of a substantial demerit against Metro-East, the Examiner concluded that a grant of East St. Louis's application gave greater assurance of securing the best practicable service to the public.
n1 Mr. Harmon I. Moseley, the proposed general manager, is also vice-president, one of five directors, and a 5.59 percent stockholder of Metro-East.
3. Exceptions to the Initial Decision were filed by Metro-East, which sought reversal of the Examiner's conclusions under both the financial qualifications issue and the comparative issue. East St. Louis filed limited exceptions, and urged affirmance of a grant of its application. Oral argument was heard by a panel of the Review Board on July 1, 1969, and on August 26, 1969, the Board released its decision (19 FCC 2d 289) in which it concluded that the Initial Decision should be reversed and that Metro-east's application should be granted. Except as supplemented and modified in the body of its decision and in its relings on the exceptions, the Board found that the Examiner's findings of fact were thorough and Largely accurate, and it adopted such findings. Briefly stated, the Review Board found that East St. Louis did not establish its financial qualifications on the record. However, because it determined that Metro-East should be preferred under the comparative issue, the Board held that a remand of the proceeding to inquire further into East St. Louis's financial qualifications would serve no useful purpose. As to the comparative aspects of the case, the Board concluded that Metro-East merits a substantial diversification preference; that the unusually poor past broadcast record of its proposed general manager negates any integration credit to Metro-East for his full-time involvement in the station's affairs; that East St. Louis warrants a slight integration preference; and that Metro-East's diversification preference outweighs East St. Louis's integration preference, with the result that Metro-East's application is to be preferred.
4. By Order (FCC 70-526) released May 26, 1970, we granted East St. Louis's application for review of the Board's decision to the extent that the parties were permitted to submit briefs and reply briefs and that oral argument before the Commission en banc was scheduled for July 9, 1970. n2 A brief in opposition to the Board's [*172] decision was filed by East St. Louis, to which Metro-East filed a reply brief. The Commission en banc heard oral argument on July 9, 1970, in which counsel for East St. Louis, Metro-East, and the Chief, Broadcast Bureau participated. For the reasons which follow, we have concluded that the public interest would be better served by a grant of the East St. Louis application and by a denial of the Metro-East application. We shall also discuss below the financial qualifications question as it bears on East St. Louis's application.
n2 Metro-East's motion, filed October 31, 1969, to strike the Broadcast Bureau's comments on East St. Louis's application for review will be denied. Metro-East augues that Section 1.115 of the Rules makes no provision for a pleading entitled "Comments"; and that since the Bureau disagrees with the Review Board's handling of the financial issue, the Bureau's pleading must be regarded as an application for review, in which case the pleading is inexcusably late. East St. Louis and the Bureau opposed the motion to strike. The Bureau's comments are not governed by Section 1.115 of the rules. The Bureau does not attack the Board's ultimate conclusion in the case, and, therefore, until East St. Louis filed its application for review, there was no reason for the Bureau to submit a pleading for the Commission's consideration.
II. EVALUATION OF COMPARATIVE CRITERIA
5. In reaching its conclusion that Metro-East should be preferred on a comparative basis, we believe that the Review Board committed some basic errors. First, the Board has misconstrued the Significance of Harmon I. Moseley's participation in the Metro-East proposal. Although the Board has, in effect, for the purposes of the comparative evaluation treated Moseley as not a participant in the Metro-East proposal, n3 the fact remains that once a grant is made to Metro-East, Moseley indeed will be participating fully in the station operation as general manager, with Metro-East placing great reliance on him because he alone of the Metro-East principals has broadcast experience, and he alone of these principals will be devoting full time to the station operation. The Board was clearly correct in stating that the unusually poor broadcast record of a principal should be given "... significance only in the context of his participation in the applicant's affairs... his involvement in the policy formulation and operation of the station." We do not agree, however, with the Board's conclusion that moseley's participation in, and control over, the affairs of Metro-East's proposed station will not be significant.
n3 As noted previously herein, the Board held that the unusually poor past record of Moseley negates any integration credit to Metro-East for his full-time involvement in the station's affairs.
6. Grand Broadcasting Co., 36 FCC 925 (1964), stated that in assessing the quality of integration proposals the Commission looks to the positions which the integrated stockholders will occupy in order to determine the extent of their policy functions and the likelihood of their playing sufficiently distinguishable roles in the management of day-to-day operations to warrant reliance upon their providing assurance that proposals will be effectuated. Accordingly, the Commission there stated that particular weight would be given to certain positions in the order of their importance. The general manager's position was stated to be of first importance. Against this background, and considering Moseley's posture in the Metro-East applicant, it is clear that the Board erred in holding that Moseley's influence over Metro-East's affairs will not be great. The Board dismissed the significance of Moseley's position as general manager, stressing the "mechanics of corporate operation". The niceties of the mechanics of corporate operation, however, do not realistically pertain to this immediate situation. First, in addition to holding the important position of general manager, Moseley is a 5.59 percent stockholder as well as being the vice-president and a director of the [*173] applicant. As is the situation with all of Metro-East's stockholders, the other four directors have no experience in operating a broadcast station and the stockholdings of those four directors fall in the following percentages: 4.0, 4.28, 6.12, and 9.58. The largest single stockholder of Metro-East (Mr. Price, n4 holding 14.5%) is not a director, and while he is the president of the applicant, he would participate only part-time with the development and presentation of youth programming. Given the lack of broadcast experience of the other stockholders, recognizing the importance of the general manager's position, and recalling that Moseley is the only stockholder who will be integrated full-time into the operation of the station, the theoretical control over Moseley by the other four directors and the 94.41 percent vote of the other 23 stockholders is not a persuasive factor in reducing the influence which Moseley would have over Metro-East. n5 Indeed, nothwith-standing Moseley's ownership of only 5.59 percent of the stock, the facts show that it is Mosely who would be in practical control of the day-to-day operation of Metro-East's proposed station. Therefore, we conclude that Moseley's prominence in the Metro-East proposal warrants the assessment of a substantial demerit against Metro-East because of his unusually poor broadcast record.
n4 On June 26, 1970, Metro-East filed a "Petition for Leave to Amend and Amendment" to reflect the death on June 10, 1970, if its president, Harold B. Price, Jr., and the subsequent election of a new president, Mr. Peter Hudyma. Mr. Hudyma has been a Metro-East stockholder and has previously served as a director. Motro-East Claims no additional comparative preference based upon his election as president. On January 8, 1971. Metro-East filed a subsequent "Petition for Leave to Amend" to reflect the death of Walter E. Koehler, who owned jointly with his wife Ruth Koehler 2.678 shares of the stock of Metro-East. The shares will now be held solely by Ruth Koehler. No objection to the petitions having been received, the petitions are granted and the amendments are accepted.
n5 The Board made no supportive findings, for example, that the other directors and the other stockholders would necessarily combine forces to oppose effectively operational policies suggested and instituted by Moseley in his official capacity.
7. We reject Metro-East's contention that Flower City Television Corp., 9 FCC 2d 249, 10 RR 2d 1059 (1967), precludes assessment of a substantial demerit against Metro-East since the unusually poor past broadcast record is not that of Metro-East itself. Flower City is inapposite. There an applicant was given a preference over all other applicants on the past broadcast record criterion because of the commendable record of performance compiled by its 15% stockholder at another station not owned or controlled by the applicant. However, as Metro-East points out, in the ultimate weighing process the Commission held that that record was not shown to be so outstanding as to warrant substantial weight since the record was not that of the applicant itself. Here, however, Moseley's past broadcast record has been found to be not just poor, but unusually poor. Thus, although this record was not compiled by Metro-East itself, because Moseley would be the general manager and in practical control of the day-to-day operation of Metro-East's proposed station, the nature of that record requires that substantial weight be given to it.
8. We have also concluded: (1) that the Review Board erred in its determination that East St. Louis merits only a slight comparative preference for integration of ownership with management; and (2) that the Examiner was correct in his award to East St. Louis of a moderate, rather than a slight, integration preference. East St. Louis [*174] clearly has a greater percentage of its stockholders proposed for full-time integration in the operation of its station than does Metro-East, 34.59 percent to 5.59 percent. n6 This difference, even considering Moseley's proposed integration as we do, would ordinarily merit a greater preference for East St. Louis than that accorded by the Review Board. In connection with Moseley's proposed integration, we believe that the quality of his proposed full-time participation as general manager is markedly lessened because his past broadcast record provides little assurance that the objectives underlying the integration criterion would be achieved.
n6 In its discussion of the integration factor, the Board, of course, excluded from consideration the proposed full-time integration of Moseley, a 5.59 percent stockholder. The Examiner, on the other hand, considered Moseley's proposed integration.
9. The Board, however, concluded that East St. Louis's integration proposal has certain "inherent deficiencies" and so is entitled to only a slight preference. The "inherent deficiencies" cited by the Board were that: (1) the total number of integrated owners represents less than 50 percent of the outstanding stock of the corporation; (2) the chief executive officer, general manager, and single largest stockholder will only be available "when needed"; and (3) several of the owners proposed for full-time integration as well as those proposed for part-time involvement "are heavily committed to other business activities, and the... availability of time to honor commitments to the station has not been shown." (1) and (2), above, are accurate and they detract somewhat from East St. Louis's integration proposal. We believe, however, that the record does not support the Board's assertion under (3), above. On the contrary, we think that the record demonstrates that all of the full-time participants in East St. Louis's proposed operation will relinquish any present occupations. Metro-East argues, however, that Robert DeMond and Edward DeMond (holding approximately 13 percent of the East St. Louis stock) should not be credited with full-time integration because they would not be available for full-time employment. n7 However, Robert DeMond testified at the hearing that he planned to devote "at least 40 hours a week" to his radio station duties. Edward DeMond testified that he expected to work more than 40 hours per week at his position for East St. Louis. Each of the witnesses indicated that he would cease all regular full-time employment other than his employment with East St. Louis, and that outside business interests would make minimal demands on his time. The Hearing Examiner, who observed the witnesses' demeanor in giving their testimony and was therefore in a better position to determine the truth of that testimony than was the Review Board, accepted these statements and accorded East St. Louis full integration credit for Robert and Edward DeMond's participation. Thus, one of the basis for the Board's conclusion that East St. Louis's integration proposal is entitled to only a slight preference, despite a nearly 30 percent disparity between it and Metro-East's proposal, must be rejected. In light of this, we conclude that the Hearing Examiner was correct in awarding East St. Louis a moderate, rather than a slight, integration preference.
n7 The Examiner concluded that Robert and Edward DeMond could be credited with full-time integration. Metro-East excepted to this conclusion before the Review Board, and the Board granted the exception.
[*175] 10. As the decisions of the Examiner and the Review Board disclose, none of Metro-East's stockholders have other broadcast interests, whereas two of East St. Louis's stockholders, Wendell J. Hansen and Evelyn Whitford, holding in the aggregate 31.7 percent of the East St. Louis stock, are 100 percent owners of broadcast stations (AM and FM) in Menomonie, Wisconsin, and they are, respectively, 51 percent and 9.37 percent owners of a television facility in Lawrence, Indiana. Subsequent to the release of the Review Board's decision. Hansen and Mrs. Whitford acquired 67.59 percent and 7.37 percent interests, respectively, in the permittee of AM station WHYT, Noblesville, Indiana. Menomonie, Lawrence, and Noblesville are, respectively, approximately 450, 225, and 235 airline miles from East St. Louis. While our Policy Statement on Comparative Broadcast Hearings, 1 FCC 2d 393, 5 RR 2d 1901, states that other interests in the principal community proposed to be served will normally be of most significance, followed by other interests in the remainder of the proposed service area, and, finally generally in the United States, it is also true that one of the primary objectives of the diversification of control of the media of mass communications criterion is to encourage maximum diffusion of ownership of broadcast facilities. In the circumstances here shown, we agree with the Examiner and the Review Board that Metro-East is entitled to a substantial preference over East St. Louis on the diversification criterion. We also agree with the reasoning of the Board, set forth in par. 10 of its decision, that the distance of Hansen's and Whitford's other facilities from East St. Louis tends to reduce only slightly the adverse effect on diversification of control of the media which would flow from a grant of the East St. Louis application. Metro-East's proposal would, therefore, better achieve the objective of the diversification criterion in that a maximum diffusion of ownership of broadcast facilities would occur.
11. In summation of the comparative evaluation, we conclude that East St. Louis's proposal offers the best practicable service to the public because of the moderate preference to which it is entitled in the factor of integration of ownership with management. The significance of East St. Louis's preference regarding the best practicable service in enhanced by Metro-East's poor showing in this connection and because of the substantial demerit which has been assessed against Metro-East as a result of Moseley's unusually poor past broadcast record. Although the factors of integration of ownership with management and past broadcast record are but two of the several indicants of the Commission's objective of obtaining the best practicable service to the public, they are, as we have stated, "of substantial importance." Policy Statement on Comparative Broadcast Hearing, 1 FCC 2d 393, 5 RR 2d 1901. On the other hand, Metro-East has been awarded a substantial preference over East St. Louis in the diversification criterion, [*176] which criterion, together with best practicable service, constitutes a primary objective in the comparative process. Weighing the significant preference awarded East St. Louis on the best practicable service criterion with the substantial preference obtained by MetroEast on the diversification criterion, our conclusion is that overall the public interest, convenience, and necessity would be best served by granting East St. Louis's application. In the circumstances shown here, we believe that East St. Louis will render significantly better service to the public than would Metro-East given its significantly better showing in integration of ownership with management, and given the unusually poor broadcast record of Moseley. Although maximum diffusion of control of ownership of broadcast facilities is one of the principal objectives in the licensing scheme, we simply do not believe that this consideration, in the facts of this case, is sufficient to overcome the clear indication that the equally important objective of best practicable service would be best advanced by a grant of East St. Louis's application. In short, we believe that East St. Louis's superior showing regarding the best practicable service affords greater assurance that East St. Louis will demonstrate greater sensitivity to the area's changing needs as well as the flexibility to change as local needs and interests change.
III. FINANCIAL QUALIFICATIONS OF EAST ST. LOUIS
12. To construct and operate its proposed station for a one-year period, East St. Louis has estimated cash requirements of $140,358. While agreeing with the Examiner's conclusion that East St. Louis's stockholders are financially able to meet their commitment (a conclusion unchallenged by Metro-East), the Review Board disagreed with the Examiner's conclusion that East St. Louis is financially qualified in an overall sense. Thus, the Board held:
... the record, as it presently stands, affirmatively shows the applicant [East St. Louis] to have available $118,662, but does not establish with any degree of precision, the current amount of funds held on deposit by East St. Louis. Accordingly, there is no basis in the record for determining whether East St. Louis has sufficient funds to meet its estimated cash requirements of $140,358.
In reaching this result, the Board reversed a ruling of the Examiner which foreclosed Metro-East from inquiring into the amount of funds which East St. Louis had on deposit as being outside the scope of the financial issues which had been added to the proceeding by the Board. Although the financial issues added by the Board were narrowly drawn, and thus some confusion arose as to the scope of such issues, we believe that the Board was correct in reversing the Examiner's ruling particularly when the initial phases of cross-examination of East St. Louis's principals disclosed that some portion of the cash on deposit had been disbursed and the witness did not know the precise amount on deposit as of the hearing.
13. We have concluded that, on a comparative basis, a grant of the East St. Louis application would better serve the public interest than would a grant of Metro-East's application. However, we are unable to conclude at this time that East St. Louis is financially qualified inasmuch as we have the same reservations regarding the cash on deposit [*177] as did the Review Board. It is necessary, therefore, that this proceeding be remanded to the Examiner who presided at this hearing for the limited purpose of determining whether the current amount of funds held on deposit by East St. Louis is, together with the established figure of $118,662.00, sufficient to meet its estimated cash requirements of $140,358.00. Therefore, the Examiner is directed to issue, as expeditiously as is possible, a supplemental initial decision which will contain findings and conclusions on the limited inquiry set forth above. n9
n9 We note that the Board stated in fn. 5 of its decision that if the proceeding were remanded (i.e., if the Board had concluded that East St. Louis should prevail under the comparative issue and that remand was necessary on the financial question) it would sua sponte, also require further inquiry into the availability to East St. Louis of the proceeds of the sale of certain "income bonds." We deem it unnecessary to inquire into this matter further inasmuch as we believe that the Board has misconstrued the terms of those securities. We should also add that we see no need, as the Board suggests in fn. 12 of its decision, to include a "character issue" against East St. Louis (in the remanded proceeding, which we have ordered) on the basis of possible misrepresentation of material facts regarding "conflictive residence claims" of certain East St. Louis principals. We have examined the evidence in this regard, and we find that it is at best ambiguous. Moreover, we note that Metro-East has never sought either a specific lack of candor or misrepresentation issue.
14. Accordingly, IT IS ORDERED, That the record in this proceeding is reopened and the proceeding IS REMANDED to the Hearing Examiner who presided herein for further hearing as set forth above.
15. IT IS FURTHER ORDERED, That the motion to strike, filed October 31, 1969, by Metro-East Broadcasting, Inc., IS DENIED.
16. IT IS FURTHER ORDERED, That the petitions for leave to amend and amendments, filed June 26, 1970 and January 8, 1971, by Metro-East Broadcasting, Inc. ARE GRANTED, and the amendments ARE ACCEPTED.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCURBY: BURCH; JOHNSON
CONCURRING OPINION OF DEAN BURCH
I have long believed that the time has come -- indeed, is past due -- to re-evaluate our process for choosing between new applicants. See my speech of January 15, 1970 to the FCC Bar Association. I think that Judge Leventhal is correct in his observations in Star Television, Inc. v. F.C.C., 416 F.2d 1086, 1094-95, cert. denied, 396 U.S. 888, where he noted the desirability of some better way to proceed than the present cumbersome process, whose complexities, in my opinion, would bring joy to a medieval scholar.
The present process is long, is expensive, does not lend itself to good prediction of outcome, and is thus burdensome on applicants and the Commission. Surely there must be a better and more efficient way to proceed -- one which will truly "best conduce to the proper dispatch of business and the ends of justice" (Section 4(j)).
Fortunately, we have now the enhanced possibility of such revision. Our procedure review committee is now studying the matter. There is, I understand, an exhaustive study nearing completion by Prof. Robert Anthony of Cornell University. The results of these studies merit our most careful consideration. For here is one instance where process and the public interest largely coalesce.
I concur in the Commission's disposition of this case as correct under the applicable law and precedents of this Commission. I support the Commission's result in this case. But I also believe this case illustrates that all is not well with the Commission's comparative renewal process. The essential slipperiness of our standards, and the process by which we arrive at the decision remain, despite all we have done, including the 1965 Policy Statement. 1 F.C.C. 2d 393 (1965). In this case for example, the Hearing Examiner's decision was reversed by the Review Board. The Review Board is in turn reversed here and the case is remanded for further testimony. And four years have already elapsed since this case was designated for hearing.
I have in the past set out my difficulties with the Commission's comparative hearing process, Farragut Television Corporation, 8 F.C.C. 2d 279, 285 (1967); Flower City Television Corporation, 9 F.C.C. 2d 249, 262 (1967). And in this case, while I support the Commission's result as correct under the circumstances, I am troubled with the apparent inability of the different decision making levels in the Commission to make similar evaluations of the same hearing record, and it is not clear at all to me that the analysis that has been done on this case is necessarily related to the main question here -- which of the applicants will be better as the licensee of a station in East St. Louis, or should both applications be denied?
And now the different standards emanating from the 1970 Policy Statement on Comparative Renewal Hearings, 22 F.C.C. 2d 424 (1970), reconsideration denied 24 F.C.C. 2d 383 (1970), along with our efforts to develop definitions of substantial performance 27 F.C.C. 2d 580 (1971) are added into the decision marking framework.
More importantly, it is difficult to detect the relationship between programming performance and the standards the Commission uses in determining who shall receive a license. I am aware of all the troubles with the comparative hearing process, the criticisms that were made of it, and the hope that by eliminating the inquiry into programming proposals in the comparative hearing process, we would improve the standards for decision making. But in eliminating most inquiry on programming proposals, we implicitly concluded that most applicants are about the same when it comes to programming, or, at least, inquiry in a hearing is unlikely to be fruitful. But my impression is that the old examination of programming proposals did result in a "bidding" for the license in terms of increased program service. The problem is that the Commission never held the winning applicant to the bid, or else allowed him to change it once the license was secure.
While I concur in the Commission's decision here, I would encourage the Commission to examine the possibility of permitting some limited comparison in hearing of programming proposals, along the lines of the preferences for programming performance we have recently proposed. 27 F.C.C. 2d 580 (1971); 27 F.C.C. 2d 697 (1971). Under this type of limited comparison the Commission might be in a better position to determine which applicant offers the "best practicable service" of which "programming is the essence."