Fine for Missing Quarterly Issues Programs List Not Excused by Intervening Transfer of Control of TV Station – Buy Assets Not Stock to Avoid Assuming Prior Owner’s FCC Liabilities

In an FCC decision fining a TV station $10,000 for failing to include 15 Quarterly Issues Programs lists in its public inspection file, the FCC refused to reduce the proposed liability based on an intervening “long-form” transfer of control followed by a short-form assignment of license of the station. Thus, even though the station was no longer controlled by the same individuals who controlled the station at the time of the violation, and even though the licensee company was different, the fine still applied.

The Media Bureau decision looked at precedent that has held that a transfer of control of a station, even a “long-form” application on FCC Form 315 that is subject to public notice and a 30 day waiting period during which the public can comment on the change in control of the licensee, does not excuse the licensee for violations of the FCC’s rules that occurred prior to the transfer. We wrote about a similar holding in another case last year. The FCC’s view is that, when you are buying the stock of a company, you acquire not only the assets of the company but also its obligations, including any potential FCC violations. This is different from an assignment of license filed on a Form 314 (also a “long-form” application subject to a 30-day public comment period) – where a buyer just buys the assets through a new company and does not assume the liabilities – a difference that the FCC has recognized in these cases. In the decision reached today, the licensee attempted to exploit that different treatment – but the FCC rejected the distinction.

In this case, the buyer, once it purchased a controlling interest in the station licensee, then assigned the license to a new company owned by the new controlling shareholders. As the new company was controlled by the new shareholders of the licensee, the approval could be received on a “short-form” FCC Form 316 without 30 days for public comment, as the same parties remained in control (the Form 316 is used for pro-forma changes in ownership – where the form of ownership changes without the control being affected). The licensee argued that, as these two transactions closed at essentially the same time, they together had the same effect as a Form 314 assignment of license. But the FCC decision refused to aggregate the approvals, instead concluding that, through the transfer of control, the new owners assumed the liabilities of the old owners, and an intervening short-form assignment did not cut off their liability.

What does this decision mean? If you are buying a station, and at all concerned about the FCC liabilities of the seller, make sure that you buy assets through an “assignment of license” of the seller, and not stock through a transfer of control. Only having a new company buying the assets from the start will avoid the issues of the seller being imputed to the new buyer.