Erwin A. Larose and Jimmy Lee Swaggart, Appellants, v. Federal Communications Commission, 494 F.2d 1145 (D.C. Cir. 1974)

Appellant LaRose, having been designated by a federal court as receiver in bankruptcy of the assets of a corporation, and, as such, having been recognized by the Federal Communications Commission as the involuntary assignee of that corporation's license to operate a radio station, sought in due course to sell and assign the license for the benefit of the bankrupt estate. His initial attempt was rebuffed by the Commission on the ground that the transfer would have violated the Commission's so-called Second Thursday principle. The Commission then denied renewal of the license, and thereafter refused, on the ground of administrative finality, to entertain a petition for reconsideration accompanied by a new proposal of sale. We think that, in the circumstances of this case, the Commission has misapplied the finality doctrine.

* The question before this court is whether the Commission abused its discretion in refusing to reopen its proceedings to consider the renewal of the license and its simultaneous sale and assignment to appellant Swaggart. Since resolution of this question depends so heavily on the facts, a detailed review of the entire history of the case is indicated.

Capital City Communications, Inc., the previous licensee of radio station WLUX, obtained its license through an FCC approved assignment from KCIL, Inc. It now appears that some of the representations made by Capital in gaining Commission approval of that transfer may have been misleading, and that Capital thereafter may have operated the station in repeated violation of Commission rules. Thus, when time for renewal of the Capital license arrived, the Commission designated the Capital renewal application for a hearing on issues involving alleged violations of FCC rules and regulations. Order and Notice of Apparent Liability, F.C.C. 7-1140 (Oct. 27, 1970).

Some four months thereafter, KCIL, a substantial creditor of Capital, filed a petition to have Capital adjudicated a bankrupt, which was allowed in March of 1971. Appellant LaRose was subsequently appointed receiver of the assets and authorized by the referee in bankruptcy to operate the station until LaRose could arrange for its disposition. LaRose then sought and obtained from the Commission approval of the involuntary assignment to him of the WLUX license, and was substituted for Capital City in the pending license renewal proceedings.

LaRose negotiated the sale of the Capital assets and license to United Broadcast Industries, Inc. The proceeds from the purchase price of $250,000.00 were calculated to support the administrative expenses of the bankruptcy as well as to provide a 97.51% Recovery of all creditors' claims. LaRose obtained approval of the referee in bankruptcy and thereafter petitioned the Commission for termination of the Capital license renewal proceedings and for approval of the sale and assignment of the WLUX license to United. In support of these requests, LaRose asserted that the proposed sale would comply with the FCC Second Thursday doctrine governing a receiver's disposition of the license of a station whose predecessor licensee stood accused of wrongdoing.¹  Additionally, LaRose maintained that the issues scheduled for hearing in the original renewal proceeding were effectively mooted by the adjudication of bankruptcy, his designation as receiver and licensee, and the negotiation of a sale and assignment of the WLUX license to a candidate who would operate the station in the public interest.

In February of 1972, the FCC denied both LaRose's request for termination of the original renewal proceedings and for assignment of the license to United, finding that the proposed sale failed to satisfy the Second Thursday doctrine requirement that the benefits to be received from it by persons charged with wrongdoing in the operation of the bankrupt station be outweighed by the public interest in protecting innocent creditors. Capital City Communications, Inc., 33 F.C.C.2d 703 (1972). After denying appellant LaRose's petition for reconsideration of those rulings, 34 F.C.C. 2d 685 (1972), the Commission proceeded to a consideration of renewal of the Capital license and, based on the misconduct of the principals of Capital, refused to renew the WLUX license to LaRose. 37 F.C.C.2d 164 (1972).² 

Shortly thereafter, LaRose petitioned for reconsideration of the non-renewal of the WLUX license and offered to the Commission a second proposal for sale and assignment, which he asserted would offer no possibility of benefiting the miscreant owners of Capital City. The Commission refused to consider these petitions, however, determining that the public interest embodied in the doctrine of administrative finality precluded considering LaRose's proposal of a second sale after his failure on the first. Appellant LaRose and appellant Swaggart, the proposed purchaser in the second transaction, appeal.³ 

II

The Commission has gradually evolved a special policy for the disposition of a license held by a trustee in bankruptcy. In the normal non-bankruptcy situation, the Commission will not approve any assignment of a license until the existing authorization is renewed. Thus, if the assignor's qualifications are insufficient to enable him to renew his license, the Commission will not authorize assignment of the license to an otherwise qualified recipient. See generally Jefferson Radio Co., Inc. v. FCC, 119 U.S.App.D.C. 256, 340 F.2d 781 (D.C. Cir. 1964); United Television Co. of New Hampshire, 38 F.C.C.2d 400 (1972); Gross Broadcasting Co., 31 F.C.C.2d 226 (1971). However, in recognition of the public interest in protecting innocent creditors, the Commission will approve the sale and assignment of the bankrupt's license when the transaction will not unduly interfere with the FCC mandate to insure that broadcast licenses are used and transferred consistently with the Communications Act. As the Commission recently explained its Second Thursday doctrine:

Despite the general rule that an assignment of license will not be authorized during the pendency of a hearing involving the character qualifications of a licensee, the Commission will permit such upon a showing that alleged wrongdoers will derive no benefit, either directly or indirectly, from the sale or will derive only minor benefit which is outweighed by the equities in favor of innocent creditors.

Shell Broadcasting, Inc., 38 F.C.C.2d 929, 931 (1973). See also Image Radio Inc., 15 F.C.C.2d 317, 319 (1968).

The Commission's regular practice is to approve an involuntary assignment of the license to a receiver in bankruptcy, who must then find a qualified purchaser and structure the sale in compliance with the mandate of Second Thursday. Thus, in evaluating the petition for assignment of the license from the receiver to the proposed assignee, the Commission must assess both the assignee's qualifications and the public interest considerations embodied in Second Thursday, which relate to the minimization of profit by the bankrupt parentlicensee.⁴ 

III

Appellant LaRose initially arranged for a transfer that, according to his judgment, would have satisfied the requirements of the Commission's stated policy. While he obtained the referee's approval of the sale, LaRose failed in this regard with the Commission. LaRose then arranged another sale on different terms to another buyer (appellant Swaggart) which the Commission refused to consider.

The Commission's reason for this latter action was stated to be the public interest in the finality of administrative decisions. Quoting from this court's decision in Fischer v. Federal Communications Commission, 135 U.S.App.D.C. 134, 417 F.2d 551, 555 (1969), in which we held that administrative agencies need not 'play games with applicants' who change plans only after failing to succeed in advancing more favorable proposals, the Commission observed that 'the Receiver would have us commence the entire process anew for the purpose of considering a different proposal . . .. At some point the administrative proceeding must be brought to a conclusion and we believe that point had been reached here.' 38 F.C.C.2d 1101 (1972).

Administrative finality so employed does not go to the Commission's jurisdiction to entertain the petition for reconsideration of the non-renewal of the WLUX license. The Commission retained authority to reconsider its earlier decision on that score until an appeal was filed in this court, or until the time for filing such an appeal had expired. See Greater Boston Television Corp. v. FCC, 149 U.S.App.D.C. 322, 463 F.2d 268, 282-283 (1971); W.S. Butterfield Theatres v. FCC, 99 U.S.App.D.C. 71, 237 F.2d 552, 555 (1956). Thus, the considerations of public interest inherent in the jurisdictional concept of administrative finality are not significantly implicated. Rather, the public interest considerations to be preserved in refusing to reconsider renewal of the WLUX license and its simultaneous sale and assignment to appellant Swaggart are those protected by any denial of any attempted second bite at the administrative apple. Paramount among those interests is the promotion of administrative efficiency. Additionally, the Commission's refusal to reconsider can in some cases serve to preveant the possible duplicity of parties who attempt to urge one goal, and, after having failed at that, thereafter advance a less desirable but more plausible position. See Fischer, supra.

However, as the Commission has recognized, Fischer does not announce an iron-clad rule of administrative finality. Indeed, after having prevailed before this court in Fischer, the FCC thereafter waived its prohibition against consideration of repeated proposals, consolidated those proposals with others, and considered the entire matter anew. Cape Fear Broadcasting, 33 F.C.C.2d 697, 698 (1971). In other instances the Commission has likewise recognized the need to reopen records and reconsider matters. See e.g., In re Cathryn Murphy, 42 F.C.C.2d 346 (1973).

While this decision to reopen proceedings for reconsideration is one committed to the discretion of the agency, Radio Corp. of America v. United States, 341 U.S. 412, 420-421, 71 S. Ct. 806, 95 L. Ed. 1062 (1951); WEBR v. FCC, 136 U.S.App.D.C. 316, 420 F.2d 158, 165-166 (1969), that discretion must be exercised without caprice. In this case, we are persuaded that the Commission failed to do so in refusing to consider the merits of the second proposed sale and assignment offered by appellant LaRose within weeks of the Commission's refusal to renew the WLUX license. Cf. Enterprise Co. v. FCC, 97 U.S.App.D.C. 374, 231 F.2d 708 (1955).

To the extent that the Commission's refusal to reopen may reflect a feeling that appellant LaRose should have abandoned the first proposed sale and assignment at an earlier date in the administrative proceedings, it fails to recognize the constraints imposed by appellant's status as a receiver in bankruptcy, as well as the unclear state of the FCC Second Thursday doctrine itself. As a receiver, appellant LaRose was an officer of the court, Powell v. Maryland Trust Co., 125 F.2d 260, 271 (4th Cir.), cert. denied, 316 U.S. 671, 62 S. Ct. 1041, 86 L. Ed. 1746 (1942), and charged with the duty of disposing of the assets in a manner that maximized the interest of the creditors. Moreover, the Second Thursday doctrine hardly held up a beacon of clarity that definitively foretold the Commission's disposition of the first proposed assignment. Application of Second Thursday requires an ad hoc balancing of the possible injury to regulatory authority that might flow from wrongdoers' realization of benefit against the public interest in innocent creditors' recovery from the sale and assignment of the license to a qualified party. The first proposed sale and assignment was very beneficial to Capital's creditors and appeared to benefit the principal wrongdoers of Capital only indirectly. Moreover, appellant LaRose felt that this indirect benefit-- in this case, the elimination of some of the wrongdoers' secondary liability on certain financial obligations-- was mitigated by the fact that those persons were judgment-proof.

In this posture, appellant LaRose was well within the bounds of rationality in terms of faithfulness to his duties as a receiver. And, having arranged for the sale and obtained the referee's approval, LaRose was required to make all reasonable efforts to obtain Commission approval. Without expressing any judgment on the Commission's application of the Second Thursday doctrine to the first sale transaction, see note 3, supra, we do not think LaRose could be faulted for his repeated attempts to persuade the FCC that the balance of public interests lay on his side of the scales.

The Commission's refusal to consider the second proposal frustrates the public interests recognized in Second Thursday itself. Since the license is by far the most valuable asset of Capital City, the Commission's refusal effectively deprives creditors of any significant recovery of the moneys they have advanced.⁵ 

Finally, the Commission's prior approval of the involuntary transfer of the Capital license to appellant LaRose resulted in the continued operation of the station and the incurring of new liabilities from advancements of credit which made that operation possible. This obvious consequence of the assignment and the Commission's permitting the continued operation of the station⁶  is at least a factor the Commission should have recognized in determining whether to reconsider the matter.

In most cases, the interests of administrative finality will suffice to support a Commission's discretionary decision to refuse to reconsider an earlier decision. On the facts of this case they will not; and it was an abuse of discretion to refuse to reconsider renewal of the WLUX license and appellant LaRose's tendered proposal for its sale and assignment to appellant Swaggart.

We express no views on whether the proposed sale to appellant Swaggart will satisfy the Commission's Second Thursday doctrine. That issue has not yet been considered by the Commission and is not before us. We simply conclude that, on the facts of this record, it was an abuse of discretion for the Commission to take the actions that prevented it from addressing that issue.

Accordingly, we reverse the Commission's order of November 8, 1972 denying reconsideration of its order of September 20, 1972 denying renewal of the WLUX license, and we remand the case to the Commission with directions to consider whether the proposed sale and assignment of such license to appellant Swaggart would promote the 'public interest, convenience, and necessity,' 47 U.S.C. 310(b).

It is so ordered.