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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission Washington, D.C. 20554 In reply refer to: 1800B2-mg May 15, 1998 Released: May 15, 1998 CERTIFIED MAIL -- RETURN RECEIPT REQUESTED American Radio Systems Corporation 116 Huntington Avenue Boston, MA 02116 Dear Licensee: This letter constitutes a Notice of Apparent Liability for a forfeiture in the amount of $18,500 issued pursuant to Section 503(b) of the Communications Act of 1934, as amended (47 U.S.C.  503(b))(the "Act"), under authority delegated to the Chief, Mass Media Bureau by 47 C.F.R.  0.283. This action results from a Commission inquiry into agreements between Palm Beach Radio Broadcasting, Inc. ("PBR") and American Radio Systems Corporation ("ARSC") concerning PBR's stations in the West Palm Beach area as well as the operation and control of these stations. Our inquiry included an informal staff request for information on these matters, to which PBR and ARSC filed a joint response on March 4, 1998. The joint response was supplemented on April 2, 1998. BACKGROUND In 1995, ARSC entered into asset purchase agreements with the licensees of the following stations in the West Palm Beach area: WPBZ(FM), Indiantown, Florida; WSTU(AM), Stuart, Florida; and WMBX(FM), Jensen Beach, Florida. ARSC subsequently assigned its rights to purchase these stations to PBR. PBR then filed assignment applications in order to acquire the stations, which were granted by the Commission staff. The application for WPBZ(FM) was granted on April 27, 1995 and the applications for WSTU(AM) and WMBX(FM) were granted on January 18, 1996. PBR consummated the acquisition of WPBZ(FM) on July 1, 1995. The acquisitions of WSTU(AM) and WMBX(FM) were consummated on March 15, 1996. PBR entered into financing agreements with ARSC in connection with its acquisition of these stations. The financing included two note purchase agreements: the first, for WPBZ(FM), was executed on June 30, 1995; the second, for WSTU(AM) and WMBX(FM), was executed on March 15, 1996. The financing agreements between ARSC and PBR included options which would permit ARSC to acquire both PBR's stock and its stations. In addition, under the agreements, ARSC had the right to a reasonable opportunity to review and approve PBR's annual budgets, as well as the right to review and approve changes in the senior management of the stations, which could not be implemented without ARSC's approval. Security, stock pledge and shareholder agreements were also executed at the same time as the note purchase agreements. When PBR acquired WPBZ(FM) in July 1995, the station's studios and offices were relocated to space in West Palm Beach that was leased from ARSC. The offices and studios for one of ARSC's West Palm Beach stations were also at this location. In addition, ARSC's sales staff sold advertising time for WPBZ(FM) under the terms of a joint sales agreement, which was in place from July 1, 1995 until October 31, 1996. When PBR acquired WSTU(AM) and WMBX(FM) on March 15, 1996, the stations initially had separate offices and studios in Stuart, Florida. However, in August 1996, ARSC moved its West Palm Beach stations to new studio and office facilities, located at the Northpoint complex in West Palm Beach ("Northpoint"). WPBZ(FM) moved to Northpoint at the same time, to space leased from ARSC. In February 1997, WMBX(FM)'s operations were also moved to Northpoint. WSTU(AM) was not relocated to Northpoint; PBR had sold the station to a party unrelated to ARSC in November 1996. ARSC and PBR concede that ARSC's involvement in the operation of PBR's West Palm Beach stations resulted in an unauthorized transfer of control. However, ARSC and PBR state that in beginning in late August and September 1997, steps were taken to separate the operations of their respective stations at Northpoint and to ensure that PBR is in control of its stations, in accordance with the requirements of the Act and the Commission's rules. DISCUSSION We have reviewed the entire record before us, including the joint filings made by PBR and ARSC. It appears that PBR abdicated control of its West Palm Beach stations and that ARSC assumed control of the stations, in violation of the provisions of Section 310(d) of the Act and Section 73.3540(a) of the Commission's rules, 47 C.F.R.  73.3540(a). In addition, it appears that based on ARSC's assumption of unauthorized control of PBR's stations, it violated the provisions of the Commission's local radio ownership rules, 47 C.F.R.  73.3555(a). Nevertheless, we do not believe that these violations put in issue ARSC's basic qualifications to be or remain a Commission licensee. Instead, we have determined that ARSC's misconduct justifies a forfeiture of $18,500 for the apparent violations of Section 310(d) of the Act and of 47 C.F.R.  73.3540(a) and the apparent violations of 47 C.F.R.  73.3555(a). Unauthorized Transfer of De Facto Control Section 310(d) of the Act, states, in pertinent part: No construction permit or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby. 47 U.S.C.  310(d); see also 47 C.F.R.  73.3540(a)(implementing the statutory provisions of Section 310(d) and prohibiting the voluntary assignment or transfer of control of a broadcast permit or license without prior Commission consent). Although there is no formula for evaluating whether a party is in de facto, or actual, control, see, e.g., Stereo Broadcasters, Inc., 55 FCC 2d 819, 821 (1975), modified, 59 FCC 2d 1002 (1976), we look to whether a new entity has obtained the right to determine the basic operating policies of the station, that is, to affect decisions concerning the personnel, programming or finances of the station. See WHDH, Inc., 17 FCC 2d 856 (1969), aff'd sub nom. Greater Boston Television Corp. v. FCC, 444 F.2d 841 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971). A licensee may delegate certain functions on a day-to-day basis to an agent or employee, e.g., Southwest Texas Public Broadcasting Council, 85 FCC 2d 713, 715 (1981), but such delegation cannot be wholesale. That is, those parties delegated a task must be guided by policies set by the permittee or licensee. See David A. Davila, 6 FCC Rcd 2897, 2899 (1991). Here, the record indicates that terms of the financing agreements themselves exceeded generally acceptable boundaries for loan agreements. In this regard, ARSC had the right to review and approve PBR's finances. In practice, it appears that ARSC was the hands-on decision maker for PBR with respect to most aspects of the financial operations of PBR's West Palm Beach stations. Moreover, the financing agreements gave ARSC the right to review and approve changes in PBR's senior management. ARSC was actively involved in many aspects of the process through which PBR hired personnel for its stations, including recommending, interviewing and negotiating the employment of candidates for key positions, including senior management. ARSC's counsel also at times prepared employment contracts for PBR employees, apparently at the direction of ARSC. ARSC participated in the termination of at least one of PBR's employees. ARSC was also involved in the programming and promotion of PBR's stations, including participating in and making recommendations with respect to format. In this regard, it appears that an ARSC employee continued to be responsible for directing WPBZ(FM)'s promotions when the joint sales agreement terminated on October 31, 1996. ARSC also recommended programming consultants, who provided audience research, music testing and program evaluation that was shared by ARSC and PBR. Although PBR ratified some of the recommendations made by ARSC, especially with regard to personnel, the record, viewed as a whole, indicates a pervasive involvement by ARSC in the operation of PBR's West Palm Beach stations. Under these circumstances, it appears that PBR abdicated and ARSC assumed de facto control of PBR's stations from July 1995 at least until September 1997, in violation of the Act and the Commission's rules. See Roy M. Speer, 11 FCC Rcd 18393, 18415 (1996). Resulting Violations of the Multiple Ownership Rules As ARSC acknowledges, in 1995, it assigned its right to purchase WPBZ(FM) to PBR in part because it already controlled two FM stations in the relevant radio market. Under the numerical limits specified in the Commission's local radio ownership rules then in effect, a single entity could permissibly own up to two AM and two FM stations in the radio market at issue, which had more than 15 commercial radio stations. See 47 C.F.R.  73.3555(a)(1992). However, by the time that the transactions for WSTU(AM) and WMBX(FM) were consummated, March 15, 1996, revised local radio ownership rules, mandated under the Telecommunications Act of 1996, were in place. 61 Fed. Reg. 10689 (1996). See Implementation of Section 202(a) and 202(b)(1) of the Telecommunications Act of 1996, 11 FCC Rcd 12368 (1996). Under the revised rules, ownership of up to eight stations, no more than five of which are in the same service is permissible in the relevant local market, which has at least 45 commercial stations. Therefore, ARSC's assumption of control of WPBZ(FM) from July 1, 1995 until the effective date of the new rules on March 15, 1996, without waiver, violated the provisions of Section 73.3555. However, by March 1997, ARSC, through subsidiaries, had acquired additional stations in the relevant local radio market. These acquisitions brought ARS's ownership to a total of six stations --two AM and four FM stations. Thus, ARSC's on-going control of PBR's two remaining FM stations-- WSTU(AM) had been sold in November 1996 -- violated the applicable numerical limits of five same-service radio stations. ARSC's multiple ownership rule violation ended when steps were taken to place PBR in control of its West Palm Beach radio stations, sometime around September 1997. Therefore, ARSC's unauthorized control of PBR's West Palm Beach stations resulted in violations of the Commission's local radio ownership rules from July 1995 to March 1996 and from March 1997 at least until September 1997. FORFEITURE Accordingly, pursuant to Section 503(b) of the Communications Act, you are hereby advised of your apparent liability for a FORFEITURE in the amount of $18,500 for your apparent willful and repeated violation of Section 310(d) of the Act, Section 73.3540(a) of the Commission's rules and Section 73.3555(a) of the Commission's rules. We have considered the factors set forth in 47 U.S.C.  503(b) as well as Commission precedent concerning similar violations in order to determine the appropriate amount of the fine imposed. Furthermore, you are afforded a period of thirty (30) days from the date of this letter to show, in writing, why a forfeiture penalty should not be imposed or should be reduced or to pay the forfeiture. Any showing as to why the forfeiture should not be imposed or should be reduced shall include a detailed factual statement and such documentation and affidavits as may be pertinent. 47 C.F.R.  1.80(f)(3). Other relevant provisions of Section 1.80 of the Commission's rules are summarized in the attachment to this letter. Sincerely, Roy J. Stewart Chief, Mass Media Bureau Attachment cc: John R. Feore, Jr., Esq. M. Anne Swanson, Esq. Counsel to American Radio Systems Corporation. Dow, Lohnes & Albertson, P.L.L.C. 1200 New Hampshire Ave, N.W. Suite 800 Washington, DC 20036