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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: 1800C1-KMS 95050408 July 29, 1998 Released: July 30, 1998 CERTIFIED MAIL -- RETURN RECEIPT REQUESTED Pacific Telestations, Inc. Licensee, Stations KUAM(AM), KUAM-FM, and KUAM-TV, Agana, Guam 4350 N. Fairfax Drive, Suite 900 Arlington, VA 22203-1633 Dear Licensee: This letter constitutes a NOTICE OF APPARENT LIABILITY FOR A FORFEITURE pursuant to Section 503(b) of the Communications Act of 1934, as amended, (the "Act"), for violations of Section 310(d) of the Act, and Sections 73.3540 (transfer of control) and 73.3615 (ownership reports) of the Commission's Rules. This action is taken under authority delegated to the Chief, Mass Media Bureau, pursuant to Section 0.283(c)(3) of the Commission's Rules. Background. By complaint dated May 22, 1995, Southern Media, Inc. ("SMI"), alleges that Calvo Enterprises, Inc. ("CEI"), improperly acquired control of Pacific Telestations, Inc. ("PTI" or "licensee"). Specifically, SMI contends that, prior to July, 1994, CEI and United Micronesia Development Association ("UMDA") each controlled 50% of Micronesia Broadcasting Corporation ("MBC"), PTI's corporate parent. However, SMI claims that on July, 1994, CEI acquired positive control of PTI without Commission authorization, which SMI discovered by reviewing the stations' ownership reports. SMI further contends that PTI violated Section 73.3615(a) of the Commission's Rules because PTI did not update its ownership information until March 14, 1995, well after the due date required by the rule. In response, PTI submits that no transfer of control occurred. First, PTI argues that neither CEI nor UMDA ever possessed negative control of PTI since each held only 49.7% of MBC's stock. Moreover, PTI contends that, after the July, 1994 transaction, CEI did not possess positive de jure control. In this regard, PTI notes that while that transaction resulted in the change of various individuals' holdings in CEI, CEI's holdings in MBC never changed. Specifically, PTI contends that prior to the stock exchange, CEI and UMDA held equal shares of 49.7% of PTI's parent, MBC, and the remaining fractional interests were held by individuals -- CEI's principals, the Calvos, and UMDA's principals Joseph Waechter, Michael Grandinetti, and Larry Hillblom. In any event, PTI claims that the transfer of MBC shares by UMDA did not convey a controlling interest in the licensee because UMDA's overall interest in MBC was transferred in equal approximate 16.6% shares to CEI's principals, Thomas J.M. and Paul M. Calvo, and to Edward M. Calvo, Trustee of the Edward M. & Frances B. Calvo Lifetime Trust. Thus, CEI's existing noncontrolling 49.7% ownership interest in MBC remained unchanged throughout. Finally, PTI contends that the MBC shares held by CEI's principals should not be attributed to CEI. In reply, SMI argues that the prior unreported retirement of Larry Hillblom's one MBC share sometime "between 1990 and 1993" resulted in UMDA losing negative control, and in CEI acquiring positive control of the licensee, due to CEI's retention of control over 500 of the-then reduced number of outstanding MBC shares -- thereafter numbering only 999, instead of 1000. SMI contends that CEI thus passively acquired 50.05% (500/999) positive control of MBC. SMI further alleges that this transfer of control occurred without prior Commission approval, and that Commission precedent sanctions failure to obtain prior transfer consent by the imposition of substantial monetary forfeitures, especially, where, as here, violation of an important Commission policy or rule is implicated, citing Galesburg Broadcasting Co., 69 RR 2d 211 (1991) (violation of alien ownership restriction), Cate Communications Corp., 60 RR 2d 1386 (1986) (repeated instances of unauthorized transfer of control) and Rust Craft Broadcasting, Inc., 47 RR 2d 947 (1970) (violation of cable/broadcast television cross-interest prohibition). Discussion. Section 310(d) of the Act prohibits the transfer of control of a station license, and any rights thereunder, without prior Commission consent. There is no exact formula by which control of a broadcast station can be determined. It is well settled that "control," as used in the Act and pertinent Commission rules, encompasses all forms of control, actual or legal, direct or indirect, negative or affirmative, and that the passage of de facto as well as de jure control demands the prior consent of the Commission. Stereo Broadcasters, Inc., 55 FCC 2d 819, 821 (1975) (citing WWIZ, Inc., 36 FCC 561, 2 RR 2d 169 (1964) and cases cited therein). In ascertaining whether a transfer of control has occurred, we traditionally look beyond the legal title to whether a new entity or individual has obtained the right to determine the basic operating policies 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). In addition, for purposes of determining licensee control, trustees, corporate shareholders, officers, and directors are generally fully attributed to the entities with whom they are associated, without regard to whether the underlying entities are natural persons or otherwise. See Attribution of Ownership Interests ("R&O"), 97 FCC 2d 997 (1984) recon. in part, 58 RR 2d 604 (1985), further recon., 1 FCC Rcd 802 (1986). As set forth in paragraph 55 of the R&O: "[a]ny person (or entity) holding or sharing the power to vote the assets of a trust will have those assets attributed to him. If those assets are above the benchmark adopted herein, that person will be deemed to have a cognizable interest in the licensee's facilities." Id., 97 FCC 2d at 1024. Moreover, the R&O acknowledged only narrow and limited instances under which corporate officers and directors would be relieved of attribution consequences. As the Commission noted, "we do not intend to permit officers and directors to disclaim their interests as a matter of course. The basic rationale for attributing interest to officers and directors of corporate licensees or those of the licensee's parent corporations remains valid." Id. at 1025. The Commission further noted that the burden is squarely upon the licensee to establish why particular officers' or directors' activities and duties should render them non- attributable to their licensees. In this case, the question raised is whether a de jure transfer of the licensee has occurred without prior Commission approval, in apparent violation of the applicable statute and the Commission's rules. The basic facts are not in dispute. As noted above, PTI concluded that the retirement of UMDA principal Larry Hillblom's single share in MBC sometime "between 1990 and 1993" did not result in CEI's passive acquisition of control over MBC and trigger the need to file an application seeking prior Commission consent. PTI further determined that the July 18, 1994 stock exchange between UMDA and CEI did not transfer control of the licensee. PTI claims that its later determination was based on "informal staff advice" that the interests of UMDA, CEI and its respective principals would not be deemed aggregated as a unitary "control group" because the Commission applies that concept "to natural persons only, and will not . . . pierce the veil of a corporate entity to apply [it]." It is significant, however, that PTI, apart from its reliance upon purported "informal staff advice," identifies no precedent or other authority to support its interpretation of Commission ownership attribution policy. We have carefully considered the record in this case, in conjunction with the materials cited and supplied by both the complainant and the licensee, as they relate to the allegations. We conclude that an apparent unauthorized transfer of de jure control of the subject stations occurred in this case. Moreover, we do not find mitigating PTI's stated reasons for failing to file the appropriate application seeking our prior approval, as required by Section 310(d) of the Act and the Commission's rules. In this regard, PTI's interpretation of the aggregation of ownership interests is directly contrary to longstanding Commission policy on ownership attribution noted above. In this case, the record establishes that the MBC assets controlled by UMDA and CEI exceeded the applicable benchmark, and PTI has offered no justification why their principals' individually-held MBC shares should be found otherwise exempt from attribution to them. Thus, we find no merit to PTI's unsupported contention that, in the instant case, the individual ownership interests in MBC held by CEI's principals, the Calvos, should not be attributed to, and aggregated with CEI's, for purposes of determining control of the licensee. The applicable ownership standard was set forth in In re Corporate Ownership Reporting and Disclosure by Broadcast Licensees, 50 Fed. Reg. 27438 (June 24, 1985). In that proceeding, the Commission emphasized the rationale for aggregating ownership interests in similar situations: "[u]nder our aggregation policy a person with stock in several separate accounts has a cognizable interest if the sum of these accounts is equal to or exceeds the benchmark standard, even if each account, when consid- ered in isolation, is below the benchmark [citing R&O, supra, at 1026]. The reason for this policy is to prevent persons from 'evading our owner- ship constraint by breaking down their interests into non-cognizable discrete investments' [citing Notice of Proposed Rulemaking, MM Docket 83-46, FCC 83-46 (released Feb. 15, 1983), at para. 36]." 50 Fed. Reg. 27438, at p. 27447, para. 52 In the instant case, accepting the licensee's contention would improperly allow CEI to "evade our ownership constraint" by dividing MBC's ownership into several "non-cognizable discrete investments" described above -- that of CEI, on the one hand, and those of the individual Calvos, on the other. Through aggregating the interests of the principals with those of their respective underlying entities, we determine that UMDA and CEI each held 50% negative control of the licensee prior to UMDA's retirement of Larry Hillblom's MBC share. Although we find that an unauthorized transfer of control occurred in this case, in apparent violation of the Commission's rules, the record does not establish precisely when that event took place. PTI indicates only that at some unspecified time "between 1990 and 1993," UMDA principal Larry Hillblom retired his single MBC share, and that the overall number of MBC's remaining outstanding shares was accordingly reduced from 1,000 to 999. We find that this event effected the loss of negative control of the licensee by UMDA, and the acquisition of its positive control by CEI, which thereafter controlled 500/999 MBC shares, or 50.05% In accordance with Section 73.3540(f) of the Commission's Rules, prior to this event, a Form 316 pro forma application seeking Commission approval should have been filed by the licensee, but was not. In addition, we note that PTI did not respond to the allegation that it failed to update its ownership information until it filed its March 15, 1995 ownership report. On the information before us, we conclude that PTI also apparently violated Section 73.3615(a) of the Commission's Rules in two respects. First, the information it supplied in connection with its March 15, 1995 report was fifteen days "stale" at the time of filing. Second, the ownership report was submitted late, because it should have been made on October 1, 1994, the anniversary of the date that the licensee's renewal application is required to be filed. See 47 C.F.R. Secs. 73.3615(a), 73.1020(a)(15) and 73.3539(a). We find that PTI's apparent violation of Section 73.3615 is de minimis. While the licensee's March 15, 1995 ownership report was submitted late, and contained information that was "stale," it is of greater concern to us that the information revealed in the instant pleadings concerning the retirement of the Hillblom share also indicates that PTI's early 1990's ownership reports were submitted with, and continue to contain, inaccurate information. However, we will not impose an additional forfeiture amount for these apparent violations. Instead, we will direct the licensee to amend its earlier reports, and caution it to exercise greater care with regard to its reporting obligations in the future. Sanction. For the reasons set forth above, we find that PTI has apparently violated Section 310(d) of the Act, Sections 73.3540 and 73.3615 of the Commission's Rules. From the information supplied, it appears that an unauthorized transfer of control occurred at an unspecified time not later than April 15, 1994, and has continued since then, and that violation of the ownership report rule occurred upon the licensee's failure to file its ownership report by October 1, 1994. Accordingly, pursuant to Section 503(b) of the Act, Pacific Telestations, Inc., licensee, Stations KUAM(AM), KUAM-FM, and KUAM-TV, Agana, Guam, is hereby advised of its apparent liability for a forfeiture of Two Thousand Dollars ($2,000.00) for its apparent willful, repeated violations of Section 310(d) of the Act, Sections 73.3540 and 73.3615 of the Commission's Rules. In assessing this monetary forfeiture, we have taken into account the nature, circumstances, extent and gravity of the violations, as well as the degree of culpability and the stations' prior enforcement history. Section 503(b)(2)(D) of the Act, 47 U.S.C. Sec. 503(b)(2)(D). In this connection, the complainant urges that the sanction imposed should be comparable to the substantial fines imposed in Galesburg Broadcasting Co., 69 RR 2d 211 (1991) ($25,000 forfeiture for failure to seek prior approval of transfer of control, and where violation of alien ownership restriction resulted), Cate Communications Corp., 60 RR 2d 1386 (1986) ($20,000 forfeiture for repeated instances of unauthorized transfer of control), noted above, CanXus Broadcasting Corporation, 7 FCC Rcd 3874 (1992), recon. granted in part, 8 FCC Rcd 4323, aff'd, 10 FCC Rcd 9950 (1995) ($10,000 forfeiture for unauthorized transfer of control, later reduced to $1,000 where, on facts not pertinent here, the prospective purchaser attempted to keep severely financially distressed station on the air), and New West Broadcasting Systems, Inc., 7 FCC Rcd 556 (MMB 1992) recon. granted, 8 FCC Rcd 102 (1993) ($20,000 forfeiture for unauthorized de facto transfer of control later rescinded, and admonishment substituted where substantial period of violation found outside statute of limitation). The nature of the unauthorized transfer of control in this case, viz., the licensee's failure to seek prior Commission consent, is similar to that imposed in Letter to Monte Corporation, (MMB, October 5, 1995), recon. granted, 11 FCC Rcd 20535 (MMB 1996) ($2,000 forfeiture imposed for an unauthorized transfer of control from the licensee to an entity under the control of the licensee's principal, later rescinded for reasons not pertinent here). We find that the instant case is inapposite to those cited by the complainant, which involved violations based on unauthorized transfers of substantial control and other compounding factors. Nor do we agree that the unauthorized transfer of control should be deemed more serious because it was based upon the licensee's desire to conceal the termination of any former principals' affiliation with IWC in order to circumvent enforcement of the Commission's rules concerning broadcast/cable television cross-ownership. As noted above, the July, 1994 stock exchange involved the transfer of a then-minority stock interest in MBC that was properly conveyed without prior Commission approval, and was thereafter accurately reflected in the stations' ownership report. In mitigation, PTI contends that it sought diligently to comply with the Commission's rules through seeking staff advice concerning the July, 1994 stock exchange. However, it makes no similar claim concerning its earlier retirement of the Larry Hillblom MBC share, which we have determined triggered the unauthorized transfer of control in this case. Consequently, we will not reduce the proposed forfeiture on this basis. Cf. Hualapai Broadcasters, Inc., 8 FCC Rcd 4914 (MMB 1993) (forfeiture reduced in part because licensee relied upon legal opinion of a recognized authority). In regard to this forfeiture proceeding, PTI is 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. Section 1.80(f)(3). Other relevant provisions of Section 1.80 are summarized in the attachment to this letter. PTI is also directed to file the neglected Form 316 transfer of control application immediately, and amend its ownership reports, as indicated above. FEDERAL COMMUNICATIONS COMMISSION Roy J. Stewart Chief, Mass Media Bureau