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If you need the complete document, download the Word or WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Notice of Apparent Liability for Forfeiture of ) ) ENSERCH CORPORATION ) File No. 920EF0033 ) Licensee of 23 Fixed Microwave Service Stations ) and 147 Private Land Mobile Radio Service Stations ) Operating throughout Texas. ) FORFEITURE ORDER Adopted: July 24, 2000 Released: July 27, 2000 By the Commission: I. INTRODUCTION 1. In this order, we find that ENSERCH Corporation (``ENSERCH'')1 transferred control of 152 licenses2 without obtaining the requisite authority from the Commission, in willful and repeated violation of Section 310(d) of the Communications Act of 1934, as amended (``Act''), 47 U.S.C. § 310(d), and former Section 101.53 of the Commission's rules, 47 C.F.R. § 101.53.3 We conclude, based upon our review of ENSERCH's August 23, 1999, ``Response to Notice of Apparent Liability for Forfeiture'' (``ENSERCH Response''), that ENSERCH is liable for a forfeiture in the amount of $150,000. II. BACKGROUND 2. On August 5, 1997, ENSERCH, a natural gas company, merged with Texas Utilities Company ("TUC"). TUC issued 15,861,272 shares of common stock, worth approximately $565 million, to former holders of ENSERCH common stock. As a result of the transaction, ENSERCH became a wholly owned subsidiary of TUC. Prior to consummating the merger, however, ENSERCH did not request or obtain Commission consent to the substantial transfer of control of its stations to TUC. 3. Eric H. Peterson, a partner in the law firm that serves as TUC's General Counsel, states that he and counsel for ENSERCH undertook extensive efforts to obtain the necessary regulatory approvals for the merger. Mr. Peterson declares that ``those responsible for the transaction failed to focus on the fact that ENSERCH held FCC licenses and that, consequently, the transfer of control of ENSERCH would also require prior FCC consent.'' See ENSERCH Response, Exhibit 1, p. 2. He speculates that this failure resulted because TUC was under pressure to consummate the transaction quickly because of rumors that another company was interested in acquiring ENSERCH, and that the due diligence effort therefore did not include a review of ENSERCH's licenses. 4. In October 1997, Texas Utilities Services, Inc. ("TUS"), another subsidiary of TUC, sought to modify one of its private land mobile licenses to add two frequencies that were licensed to ENSERCH at a location just two blocks away. When frequency coordinators questioned the proposed short spacing of the stations, ENSERCH employee Robert Upperman ("Upperman") directed a letter, dated January 22, 1998, to the Wireless Telecommunications Bureau to clarify the status of ENSERCH's licenses. In that letter, Upperman represented that "ENSERCH Corporation is a Texas Utilities Company. Please change the license to read: Texas Utilities Services, Inc." See ENSERCH Response, Exhibit 5. The Upperman letter gave TUS's address as ENSERCH's new address. One day later, on January 23, 1998, TUS employee Rudolph Perry ("Perry") directed a similar letter to the Commission, stating: "ENSERCH Corporation is a wholly owned Texas Utilities company [sic]." See ENSERCH Response, Exhibit 6. Perry stated in his letter that the Commission should contact him or Upperman for further information. 5. By letter, dated February 20, 1998, the Commission's staff informed Mr. Upperman: Your name change indicates a possible change in ownership, corporate structure, or control, which would require a modification as defined in Rule 90.135. If ownership, corporate structure, or control has changed, you must file FCC Forms 600 and 1046, or FCC Form 490 or FCC Form 703 as appropriate. See letter dated February 20, 1998 from Informal Complaints & Public Inquiry Branch, Enforcement and Consumer Information Division, Wireless Telecommunications Bureau, to Robert E. Upperman (ENSERCH Response, Exhibit 8). Robert B. Morris, a senior engineer at TUS, states that he believes he received the February 20, 1998 letter. Mr. Morris states, however, that he did not believe a response to the letter was necessary because TUS no longer needed the two licenses for which they were applying. Mr. Morris claims that it never occurred to him that the letter concerned a broader transfer of control issue because it was his understanding that so long as ENSERCH remained the licensee, changes in the ownership of ENSERCH did not require Commission approval. ENSERCH admits, ``to someone who understood the FCC rules regarding transfers of control, the FCC Letter would have prompted an immediate response.'' ENSERCH also concedes that the persons who were involved in licensing activities for TUS and ENSERCH did not understand the transfer of control provisions of the Act and the Commission's rules. See ENSERCH Response, p. 5. 6. At some unspecified time later, Mr. Morris read a trade journal article about the Commission imposing a penalty upon another utility that had merged without prior Commission approval. Mr. Morris then raised questions about the ENSERCH/TUC merger with his superiors. On August 20, 1998, counsel submitted two separate applications requesting Commission consent to the substantial transfer of control of ENSERCH's 23 fixed point-to- point microwave and 147 Private Land Mobile Radio Service (``PLMRS'') licenses, nunc pro tunc. The Commission staff authorized the transfer of control of the 147 PLMRS licenses on September 8, 1998, and the Commission staff authorized the transfer of control of the 23 fixed point-to-point microwave licenses on April 30, 1999. The authorization for the 23 microwave licenses indicated that it was without prejudice to possible enforcement action. No such condition was placed on the authorization for the land mobile licenses. The authorizations did not indicate that the grant of Commission consent was nunc pro tunc.4 7. On July 23, 1999, the Commission released a Notice of Apparent Liability for a Forfeiture (``NAL'') in which it found that ENSERCH had apparently violated Section 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. § 310(d). ENSERCH Corporation, 16 Comm. Reg. 864 (1999). The Commission proposed a $510,000 forfeiture against ENSERCH. ENSERCH filed its response on August 23, 1999. 8. Frank Donovan, Manager of Telecommunications for TUS, admits ``that the failure to seek prior FCC consent to the merger or more quickly to respond to FCC correspondence shows that greater attention to such matters must be taken by company executives with appropriate matters referred to legal counsel.'' See ENSERCH Response, Exhibit 4. As a result, all correspondence from the Commission, except for notices of renewal of licenses, must be forwarded to the Manager of Telecommunications and the Transport Technology Manager. If either manager has questions about the correspondence, they must refer the correspondence to the Vice President, Information Technology, and to counsel. Mr. Peterson, in his firm's role as general counsel, has now required that FCC licensing will now be a separate item on the due diligence for every merger or acquisition, even if the companies, on their face, are not involved in communications activities. III. DISCUSSION 9. In its Response to the NAL, ENSERCH states that it ``does not contest the Commission's determination that a violation of its rules occurred or even, if found to be within the relevant statute of limitations, that consistent with Commission practice, a monetary penalty is appropriate.'' ENSERCH Response, p. 7. It argues, however, that the forfeiture is barred by the statute of limitations and that the proposed forfeiture amount exceeds the statutory maximum. It also argues that a forfeiture cannot be imposed for the 147 private land mobile licenses because no condition contemplating enforcement action was placed on the Commission's consent to the transfer of control. ENSERCH devotes most of its response to arguing that the $510,000 forfeiture proposed in the NAL is excessive. ENSERCH argues that the proposed forfeiture is inconsistent with precedent, that the Commission placed undue weight on the fact that the transfer involved 170 stations, and that the Commission placed undue weight on aggravating factors while ignoring mitigating factors. For the reasons discussed below, we lower the amount to $150,000. 10. We reject ENSERCH's statute of limitations argument because it misconstrues the nature of the violation and the NAL. Although the Commission may not issue a forfeiture against a wireless licensee for a violation that occurred more than one year prior to the issuance of the notice of apparent liability (47 U.S.C. § 503(b)(6)(B)), Commission precedent holds that an unauthorized transfer of control is a continuing violation that does not end until the Commission grants a transfer of control application. Benito Rish, 10 FCC Rcd 2861 (1995), see also Puget Sound Energy, Inc., 14 FCC Rcd 9111, 9113 (WTB 1999). In this case, the unauthorized substantial transfer of control began on August 5, 1997 and continued until, at the earliest, September 8, 1998, when the first transfer of control application was granted. ENSERCH thus is liable for a forfeiture for the period from July 23, 1998, or one year from the day when the NAL was released, until, at the earliest, September 8, 1998. 11. Alternatively, ENSERCH argues that the Commission may not rely upon circumstances that occurred more than one year prior to the issuance of the NAL. While the Commission may not, in this case, find ENSERCH liable for violations committed prior to July 23, 1998, it may consider facts arising before that date in determining an appropriate forfeiture amount. In Eastern Broadcasting Corp., 10 FCC 2d 37 (1967), the Commission held that it could consider acts of a station manager that occurred outside the statute of limitations in determining the appropriate forfeiture for acts that occurred inside the statute of limitations. The Commission held that it could consider matters occurring outside the statute of limitations period in determining a licensee's ``degree of culpability.'' Similarly, in Cate Communications Corporation, 60 RR 2d 1386 (1986), the Commission considered facts prior to the statute of limitations period in considering the appropriate forfeiture amount for a continuing transfer of control. The Commission held that such facts placed ``the violations in context, thus establishing the licensee's degree of culpability and the continuing nature of the violations.'' Similarly, in this case, we used the facts that took place prior to July 23, 1998 to establish the context for assessing an appropriate forfeiture amount for the violations that were subject to a forfeiture from July 23, 1998 forward. Accordingly, ENSERCH's argument that the NAL violated the statute of limitations is rejected. 12. ENSERCH also argues that the forfeiture exceeds the $82,500 maximum forfeiture for any single action or failure to act.5 See 47 U.S.C. § 503(b)(2)(C), 47 C.F.R. § 1.80(b)(5)(iii). We reject that argument because each station that ENSERCH transferred without Commission approval constitutes a separate violation of the Act and the Commission's rules. See Courtesy Communications, Inc., 14 FCC Rcd 4198, 4200 (1999). The $82,500 statutory maximum represents the maximum forfeiture that can be issued ``for any single act or failure to act described in paragraph (1) of this subsection.'' See 47 U.S.C. § 503(b)(2)(C).6 Section 503(b)(1)(B) of the Act refers, inter alia, to a failure ``to comply with any of the provisions of this Act or of any rule, regulation, or order issued by the Commission under this Act . . . .'' Because ENSERCH committed over 100 violations, the total proposed forfeiture was, in fact, below the maximum permitted under the Act. 13. Third, ENSERCH argues that no forfeiture may be imposed for the 147 private land mobile stations because ENSERCH requested approval of the transfer nunc pro tunc and the grant of the transfer of control application did not specifically contemplate enforcement action. In support, ENSERCH cites Verilink Corp. v. Tellabs Industries, Inc., 60 RR 2d 1683, 1689 (1986). ENSERCH Response, pp. 11-12. We reject that argument because while ENSERCH requested that the transfer of control application be granted nunc pro tunc, the staff did not grant the applications on that basis. The Commission's database indicates with respect to the transfer of control application, ``This Transfer of control authorized on 9/8/98 for the outstanding term of the license.'' If the staff had intended to grant the transfer of control on a nunc pro tunc basis, the staff would have authorized the transfer of control as of August 5, 1997, the date the transfer took place. Moreover, in Verilink, the recipient of the NAL had apparently received an oral waiver of the rule that was the subject of the notice of apparent liability. Accordingly, the Commission concluded that it was improper to find a rule violation under those circumstances. While the grant of consent to the transfer of control of ENSERCH's private land mobile stations did not specifically contain a condition mentioning enforcement action, such a condition was not a necessary prerequisite for enforcement action, since ENSERCH was the licensee of the stations both before and after the transfer. 14. ENSERCH reports, and the Commission's records confirm, that 18 of the private land mobile stations that were part of ENSERCH's transfer of control application were in fact licensed after the transfer of control took place. ENSERCH Response, p. 11 n.35.7 Accordingly, we find that there was no unauthorized transfer of control of those 18 stations. 15. ENSERCH also argues that the $510,000 forfeiture proposed in the NAL is excessive, its actions were not, as the NAL concluded, ``cavalier,'' and the proposed forfeiture is inconsistent with the forfeiture imposed by the Wireless Telecommunications Bureau in Puget Sound Energy, Inc. After reviewing the record, we agree that ENSERCH did not intentionally violate the Commission's rules. Moreover, after we issued this NAL, we adopted Central Illinois Public Service Company, 15 FCC Rcd 1750, 1753 (1999), in which we declined to engage in a strict mathematical exercise of multiplying a base forfeiture amount for a violation times the number of stations, the calculation used in this case. In Central Illinois, we explained that continuing to use this method ``would result in an excessive forfeiture amount and would be inconsistent with prior enforcement actions.'' Instead, we determined that the number of stations involved should be treated as an aggravating factor warranting an increased forfeiture. In light of this, we believe the forfeiture amount in the instant case should be significantly reduced. 16. However, we continue to be troubled greatly by ENSERCH's failure to respond to a specific Commission notification that, in its own words, ``would have prompted an immediate response'' from ``someone who understood the FCC rules regarding transfers of control.'' The Commission expects all licensees promptly to take appropriate action in response to Commission correspondence. By its own admission, ENSERCH did not have the proper procedures in place to ensure that it took appropriate action responsive to the staff letter. While ENSERCH did not commit intentional violations, its failure to act represents a serious breach of its responsibilities as a Commission licensee. In this regard, we believe that ENSERCH's failure to respond in a timely fashion to the staff's February 20, 1998 letter is a significant aggravating factor. This factor, coupled with the facts that this violation involved a substantial transfer of control for a significant number of licenses and continued for an extended period of time, leads us to conclude that a $150,000 forfeiture is warranted. 17. ENSERCH's response does not demonstrate that a further reduction is warranted. The Puget Sound case relied on by ENSERCH involved fewer stations (125 versus 152), continued for a lesser period of time (approximately two months versus just over one year), and did not involve a failure to respond to a Commission warning or notification. Similarly, the facts of this case are also more egregious than the facts in Central Illinois Public Service Company, where we imposed a $30,000 forfeiture for an unauthorized substantial transfer of control. Central Illinois also involved significantly fewer stations (88 versus 152), occurred for a lesser period of time (approximately three and a half months versus just over one year), and did not involve a failure to respond to a Commission warning or notification. Finally, the other mitigating factors ENSERCH cites do not warrant further reduction. Accordingly, in light of the facts presented in ENSERCH's response, including its implementation of a compliance program to prevent future violations, we conclude that a $150,000 forfeiture is appropriate. IV. ORDERING CLAUSES 18. Accordingly, IT IS ORDERED THAT, pursuant to Section 503(b) of the Act, 47 U.S.C. § 503(b), and Section 1.80(f)(4) of the Commission's rules, 47 C.F.R. § 1.80(f)(4), ENSERCH Corporation (now known as TXU Gas Company) IS LIABLE FOR A MONETARY FORFEITURE in the amount of one hundred and fifty thousand dollars ($150,000), for willful and repeated violations of Section 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. § 310(d), and former Section 101.53 of the Commission's rules, 47 C.F.R. § 101.53. 19. Payment of the forfeiture shall be made in the manner provided for in section 1.80 of the Commission's rules within 30 days of the release of this Order. If the forfeiture is not paid within the period specified, the case may be referred to the Department of Justice for collection pursuant to section 504(a) of the Act, 47 U.S.C. § 504(a). Payment may be made by credit card through the Commission's Credit and Debt Management Center at (202) 418-1995 or by mailing a check or similar instrument, payable to the order of the Federal Communications Commission, to the Federal Communications Commission, P.O. Box 73482, Chicago, Illinois 60673-7482. The payment should note the NAL/Acct. No. referenced above. Requests for full payment under an installment plan should be sent to: Chief, Credit and Debt Management Center, 445 12th Street, S.W., Washington, D.C. 20554. See 47 C.F.R. § 1.1914. 20. IT IS FURTHER ORDERED that copies of this Notice shall be sent, by Certified Mail/Return Receipt Requested, to counsel for ENSERCH, Jonathan L. Wiener, Esq., Goldberg, Godles, Wiener & Wright, 1229 19th Street, N.W., Washington, DC 20036. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary _________________________ 1 ENSERCH has changed its name to TXU Gas Company. See ENSERCH Response, p. 1 n.1. For ease of reference, we will refer to the licensee by its former name. 2 As explained in paragraph 14 below, while the Notice of Apparent Liability for Forfeiture (see ¶7, infra) found ENSERCH apparently liable for the transfer of 170 stations, we conclude that no unauthorized transfer of control took place with respect to 18 of those stations because those stations were not licensed until after the transfer of control of ENSERCH took place. 3 47 C.F.R. § 101.53. That rule was replaced by Section 1.948 of the Commission's rules on February 16, 1999. In the Matter of Biennial Regulatory Review -- Amendment of Parts 0, 1, 13, 22, 24, 26, 27, 80, 87, 90, 95, 97, and 101 of the Commission's Rules to Facilitate the Development and Use of the Universal Licensing System in the Wireless Telecommunications Services, 13 FCC Rcd 21027 (1998). During the period prior to the time that ENSERCH filed its applications, however, Section 101.53 of the Commission's rules was the pertinent rule. 4 See authorizations issued to ENSERCH dated September 8, 1998 (land mobile stations) and April 9, 1999 (microwave stations). 5 ENSERCH Response, p. 20. 6 The figure contained in the text of the statute is $75,000. Pursuant to the Debt Collection Improvement Act of 1996, Public Law 104-134 (110 Stat. 1321-358), the maximum has been adjusted for inflation up to $82,500. See Section 1.80(b)(5)(iii) of the Commission's rules, 47 C.F.R. § 1.80(b)(5)(iii). 7 The call signs of those stations are WPKY559, WPKZ419, WPKZ641, WPKZ649, WPLP281, WPLQ920, WPLW533, WPLW534, WPLW819, WPLW822, WPLW824, WPLW825, WPLW827, WPMB979, WPMB983, WPMK681, WPPMK682, AND WPMK683.