FCC Says No to Court’s Enforcement of Contractual Rights that Limit Broadcast Licensee’s Control Rights – What Does this Mean for Broadcast Contracts? 

How far can a court go in ordering broadcasters to comply with the terms of a contract?  By trying to get a court to enforce a contract signed with a broadcaster, is the suing party infringing on a licensee’s control over its broadcast station license? These questions are addressed in a letter that the FCC released this week, sent to a federal district court in connection with a dispute between two big TV companies over the termination of a Joint Sales Agreement between TV stations in Georgia.  In the case, Media General is seeking to enforce a JSA against a TV station in Augusta that had been owned by Schurz Communications, which was recently acquired by Gray Television.  As a condition of the sale of Schurz to Gray, to obtain FCC approval, the parties agreed to terminate the Augusta JSA.  Media General sued, and on February 26 it obtained an injunction from a Georgia state court barring Gray from operating the station or selling the station’s spectrum in the upcoming incentive auction.  The FCC’s letter states that it believes that the courts cannot order the relief that Media General seeks without infringing on the licensee’s rights to control the station.

While there have been procedural developments in the underlying dispute dealing with the court that will hear the case, it is the substance of the FCC’s letter that is important.  The FCC’s conclusion was based on two findings.  First, it found that Media General could not enforce the JSA because its termination was a requirement of the FCC in connection with the sale of Schurz – so a court cannot order the station to violate the FCC’s own order.  But more fundamentally, the FCC determined that Media General’s efforts infringed on the obligation under Section 310 of the Communications Act that the licensee (now Gray) maintain control over its station unless the FCC has approved a transfer of that control.  In the FCC’s eyes, control includes control over the programming of the station – which would be infringed by the JSA.  It also includes control over the ultimate disposition of the station, which would be infringed by any order forbidding its participation in the incentive auction.  According to the FCC, an element of control of a station is being able to decide whether or not to sell it.  While the FCC acknowledged that Gray and/or Shurz might be liable to Media General for monetary damages and penalties for any breach of the contract provisions, Media General could not get a court to make the station comply with these alleged obligations.  This is not the first time that the FCC has made such a pronouncement.

We wrote here about a case where the FCC stepped in to penalize a broadcaster who tried to enforce noncompete provisions of a contract restricting the programming of another station owner in its market.  The FCC found that the broadcaster could not restrict the programming of the other station – even though the other station had agreed to that restriction when the enforcing broadcaster sold him a station. In that case, the FCC found that the broadcaster’s attempts to use the courts to enforce the noncompete were an attempt to improperly control the other station, and it fined the station that had brought the lawsuit requesting enforcement of the noncompete.

These cases make clear that, when entering into agreements with broadcast stations, injunctive relief may not always be an option.  In any sort of programming agreement, including an LMA or time brokerage agreement, the FCC will look askance at attempts to seek specific performance or other “equitable relief,” i.e. any order from a court ordering that the contract be performed as written.  The broadcaster who does not perform under the agreement may well have financial liability to the other party under the agreement, but that other party may well not be able to get what he bargained for.  Additionally, the opinion expressed by the FCC in the Media General letter may well make it difficult to enforce any agreement that forces a station owner to sell their station when they do not want to (or to not sell it when they do want to sell).

Clearly, with these cases in mind, parties to contracts with broadcast stations need to think about putting in financial penalties in agreements in case these agreements cannot be enforced according to their terms.  They also may want to think about provisions requiring the station owner to seek prior FCC approval before any relief is given to the other contract party, as the FCC in the Media General case and in the format noncompete case found that the problem with seeking the court order to enforce the contract was that it was an unauthorized transfer of control.  Had the FCC authorized the exercise of control, perhaps the result would have been different.  Whether the FCC would approve a transfer in such a case is unknown, but that is where these cases seem to take us.  These cases raise just one more issue to consider in drafting broadcast contracts.