Folkways Broadcasting Company, Inc. v. Federal Communications Commission, F. L. Crowder T/a Harriman Broadcasting Co., Intervenor , 375 F.2d 299 ( 1967 )

FAHY, Circuit Judge:

Five years ago F. L. Crowder, trading as Harriman Broadcasting Co., interven- or on this appeal and referred to as Crowder, applied to the Federal Communications Commission, appellee, for a new standard broadcast station in Harriman, Tennessee. Folkways Broadcasting Company, Inc., appellant, is the licensee of AM radio station, WHBT, in Harriman. It petitioned the Commission to deny Crowder’s application and alternatively to designate it for a hearing on issues set forth by Folkways. The Commission, however, on January 14, 1966, without a hearing granted the application for a construction permit for the station. Two Commissioners dissented and another filed a concurring statement. The latter expressed disapproval of “Carroll” issue standards previously adopted by the Commission in Missouri-Illinois Broadcasting Co., 3 Pike & Fischer Radio Reg. 2d 232, but concluded independently of those standards that WHBT had failed to make out a prima facie ease of economic injury. Our question is whether Folkways was entitled to an evidentiary hearing on any of the issues it presented.

Folkways’ right to such a hearing depends upon whether its petition to deny, and data in support, considered with the reply of Crowder and other data properly before the Commission, met the requirements set forth in Section 309(d) of the Communications Act of 1934.¹ This section requires the petition to contain specific allegations to show petitioner’s interests as a party, and to raise such substantial and material questions of fact as to necessitate an evidentiary hearing to enable the Commission to find that grant of the application would be in the public interest. Folkways, as licensee of a station which would be in competition with Crowder’s was a party in interest. This is not disputed.

One of the issues presented by Folkways is whether Crowder made efforts and, if so, of sufficient extent, to determine the tastes, needs and desires of Harriman and the area to be served, as required by the standards established by the Commission in its release of July 29, 1960, entitled “Report and Statement of Policy Re: Commission En Banc Programming Inquiry.” In Henry v. FCC, 112 U.S.App.D.C. 257, 260, 302 F.2d 191, 194, affirming Suburban Broadcasters, 30 F.C.C. 1021, we held that under these standards the question is “simply whether the Commission may require that an applicant demonstrate an earnest interest in serving a local community by evidencing a familiarity with its particular needs and an effort to meet them.” In the present case the Commission states that, “as a matter of judgment, the manner in which the survey was made leaves something to be desired,” with which we agree; but our review of the record leaves us unconvinced that the Commission’s clearance of Crowder on this issue should be set aside. We are of like mind on the related issue of misrepresentation, or failure to disclose any material fact, regarding the survey of community tastes, needs and desires. However, the record on this issue influences, though it does not control, our decision on the trafficking issue discussed infra²

Appellant also raised an issue as to Crowder’s financial qualifications. Considering applicant’s experience in the area, including broadcast experience, and knowledge of the business community to be served, we agreed that Crowder’s estimate of anticipated revenues for the first year of operations, together with committed capital and assets, were not sufficienty brought in question to call upon the court to insist upon an evidentiary hearing which the Commission found unnecessary.³

On the trafficking issue — whether Crowder has engaged in trafficking of broadcast authorizations, and whether grant of its present application would create another opportunity for such trafficking, inconsistent with the public interest — we conclude that a hearing should have been held.⁴ The record supports the factual situation now set forth as relevant to this issue.

Mr. Crowder obtained sole ownership of station WHBT in 1950 ⁵ and operated this station until he sold it in 1956 at a profit of some 61,000 dollars. In September 1954, he was granted a construction permit for station WDEH, Sweet-water, Tennessee. He commenced its operation in February 1955 and sold it in January 1956 for 57,500 dollars, a profit of approximately 22,000 dollars.⁶ In 1956 he also applied for and was granted a construction permit for station WLIV, Livingston, Tennessee, in which he held a fifty per cent interest, which he sold in 1964. In responding to Folkways’ trafficking allegations in the present proceeding, Mr. Crowder represents that in 1956 he was forced by ill health to sell his interests in WHBT and WDEH: “Upon a doctor’s advice Mr. Crowder retired completely from active participation in the radio broadcast industry.” However, when he applied for Commission approval of the two sales in 1956, he failed to give this reason though the Commission asked for a fuller statement of his reasons. It was not until 1963 that health reasons were suggested. Moreover, in 1956 when he was “retiring completely from the radio broadcasting industry,” he was also applying for a license for the Livingston station, representing that he was to be a fifty per cent partner and the general manager of the station.⁷

The court cannot accept the Commission’s conclusion of no inconsistency in these representations on the record before the Commission. The trafficking issue is a sensitive one vitally affecting the public interest represented by the Act administered by the Commission. Licenses cannot be granted in the public interest to those who seek them for sale rather than service. There may be a basis for reconciling the inconsistent representations in a manner which prevents disqualification of Crowder, but the subject needed examination at a live hearing. There is substance to the dissent of Commissioner Bartley, expressing his view that WHBT’s petition to deny raised a serious question as to trafficking, requiring an evidentiary hearing to resolve the matter.⁸ Crowder’s response fails to resolve it. The' fact that Crowder, as the Commission states, operated station WHBT from 1950 to 1956 before selling it does not answer the question; the question is not whether the trafficking intent arose prior to 1950, but whether it arose at all. As to that, events which did not begin until 1956 are sufficient to require the probing of an evidentiary hearing.

We also think the Carroll issue needs further consideration by the Commission, that is, the issue whether the economics of the situation would lead to degradation of service to the public were Crowder’s application granted. In Carroll Broadcasting Co. v. FCC, 103 U.S. App.D.C. 346, 258 F.2d 440, relying heavily upon FCC v. Sanders Bros. Radio Station, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869, we held that while economic injury to an existing station is not a ground for denying a new application, the basic charter of the Commission requires it to act in the public interest. This imposes upon the Commission a duty to determine whether the economic effect of another licensee in an area would be to damage or destroy service to an extent incompatible with the public interest, this depending upon the facts. The problem arises when a protestant, or, as in this case, one who petitions that an application be denied, offers to prove that for the reasons thus suggested the grant would be detrimental to the public interest and supports this position by a showing that is substantial enough to create a genuine factual issue. Carroll was decided in 1958. Congress amended the statute in 1960.⁹ Thereafter we considered the problem anew in Southwestern Operating Co. v. FCC, 122 U.S.App.D.C. 137, 138 n.2, 351 F.2d 834, 835 n.2, decided in 1965, stating that the new legislation,

created the device of a petition to deny, which must be filed in advance of hearing and, indeed, made it clear that no hearing need be held if that petition failed to “contain specific allegations of fact sufficient to show that the petitioner is a party in interest and that a grant of the application would be prima facie inconsistent with [the public interest, convenience and necessity] * * 47 U.S.C. § 309(d) (1). If “there are no substantial and material questions of fact and * * * a grant of the application would be consistent with [the public interest] * * * ” the petition shall be denied and the grant made without hearing. 47 U.S.C. § 309(d) (2). [But] * * if “a substantial and material question of fact is presented or the Commission for any reason is unable to make the [public interest] finding,” the application shall be set for nearing on the issues raised.

We pointed out in Southwestern that “the temptation to an existing licensee to postpone as long as possible the advent of competition warrants special care by the Commission in the scrutiny of requests for hearing in Carroll circumstances.” But we nevertheless held that the papers filed with the Commission in that case “raised substantial and material issues of fact which should have been exposed to the give-and-take of an evidentiary hearing.” Southwestern, supra at 140, 351 F.2d at 837.¹⁰

There are several subsidiary considerations, pro and con, which arise in this area of administering the Act. In order to serve the basic interest of the public the Commission is entitled to insist upon more than conclusional allegations easily made and which, if accepted, entail unjustified delay and consumption of the Commission’s time and energy. See Chief Judge Bazelon’s dissent in Southwestern. The delay factor loses a good deal in significance in the present case in light of the long and unexplained delay in the proceedings unrelated to appellant’s desire for a hearing.¹¹ As to specificity, the adverse economic impact of a new station upon an existing one and the degree to which this impact is detrimental, if at all, to the public interest, are not subject to exact calculation by the licensee. Assessment of these effects is ordinarily an informed judgment having some quality of prophecy. At times there might be a knowledge of a specific financial loss and its detrimental consequence on programming, but we think a Carroll hearing may not be limited to a case in which pre-knowledge of the exact economics of the situation is necessarily available. Requiring such precision would eliminate the doctrine as a practical matter. If the Carroll hearing is to continue, then some adjustment is required. The specificity of allegations referred to in Section 309(d) must not be construed to require such exactness as is practically impossible.

Folkways and intervenor placed before the Commission a good deal of economic data on the subject whether a third station in the same general area¹² would lead to economic injury to WHBT, which would in turn lead to degradation of service in Harriman and, therefore, be inconsistent with the public interest. In defending in this court its denial of a hearing the Commission states appellant’s position to be, principally, that the Commission erred (1) in disregarding “Crowder’s threat to engage in a rate war,” and (2) in insisting on requiring too detailed a showing of injury. We think the Commission has not satisfactorily met these criticisms. As to the allegedly threatened rate war, the Commission states a hearing would show simply that Crowder’s proposed advertising rates would be substantially lower than Folkways’ present rates. The Commission says, “There is no evidence to suggest that Crowder has threatened to engage in any unfair competitive practice or that he would be likely to do so.” But no evidence was taken on the subject. And yet the issue of a threatened rate war to drive Folkways out of business was fully raised by allegations which if true posed a substantial question of public interest under the Carroll doctrine.

Folkways’ petition to deny was accompanied by the affidavit of a Mr. Willis, and Crowder’s opposition to this petition was accompanied by the counter-affidavit of a Mr. Scarbrough. These two af-fiants respectively were the advertising salesman and manager of a station in Oneida, Tennessee. It appears that in riding to work together they discussed advertising problems and frequently dwelt on the disparity of rates among the many area stations. Willis’ affidavit attests that he was told by Scarbrough that Crowder planned to charge rates fifty per cent lower than those charged by WHBT in order to acquire WHBT’s commercial advertisers. Furthermore, “in said discussion Mr. Scarborough indicated that he and Mr. Crowder understood that this would ‘drive WHBT out of business’ which Mr. Crowder and Mr. Scarborough would be glad to have happen.” On the other hand, Scarbrough’s affidavit brands Willis’ statement a “complete falsehood.” Scarbrough admits having knowledge of many of Crowder’s plans, but denies having knowledge of the proposed rate structure. He states that Willis attempted to draw information from him, but “I completely denied and absolutely would not talk about any of Mr. Crowder’s plans which I knew about.” In a subsequent affidavit Willis reaffirmed his original statement. The discrepancies within and among these affidavits and the close relationships between the affiants and the parties demonstrate that a hearing, with opportunity to offer further evidence and cross-examine witnesses, was needful in resolving the rate war issue. This substantial issue was left unresolved though Crow-der contended his proposed rates were in fact fifty per cent lower than those of WHBT.

In considering the Carroll issue, the Commission’s opinion sets forth Folkways’ allegations that the addition of another station would mean inadequate revenues for WHBT, a reduction of its staff, and curtailment of public service programs and community activities by station personnel, whereas there is no assurance the Crowder station would be able to replace the service lost. The showing of Folkways in these respects was held inadequate partially, though not entirely, because

When afforded an opportunity to show what advertisers would shift their advertising to the new station, WHBT declined to ‘speculate’ on the contingency. WHBT asserts that the establishment of another station would result in a ‘significant reduction or destruction’ of service, but does not indicate the extent or nature of the significant reduction or destruction. * * * Absent an appropriate showing, including a showing of the specific relationship between any assumed losses in revenue to the withdrawal of particular programs or program service, the Commission cannot conclude that WHBT has raised an issue which would require a hearing.

Such a requirement seems to us to come too close to that nullification of the Carroll doctrine of which we have above warned. To require a specific advance showing that a particular program would be abandoned should the economic injury ensue would be to force an advance decision where some latitude should be left to management. The question is whether there would be degradation of public service resulting from the necessary abandonment of a program or programs within a range of programs some of which would have to be abandoned. Exposition of the matter by a hearing should not be denied simply because a petitioner has not specified the exact program the alleged loss would cause to be abandoned. So, too, as to possible loss of advertisers. Here a reasonable judgment by the licensee must be reached, supported in its reasonableness by a strong showing, but it need be only such a judgment, not an exact detail of facts— for example, not necessarily knowledge of specific advertising shifts.

The court does not relish the task of devising different standards from those adopted by the Commission. Undue interference by the court is itself contrary to the public interest, but we respectfully suggest that the Commission seek a ground upon which the CarroU doctrine can stand which will avoid unnecessary and time consuming hearings but which at the same time will not make the right to a hearing practically unattainable. We decide only that the reasons given by the Commission for the rejection of the CarroU hearing are not satisfactory.

By reason of the data before the Commission on the alleged threat of a rate war, and the possibility of unfair and ruinous competition, we think an evi-dentiary CarroU hearing was required. In other respects the CarroU issue should be reconsidered consistently with the views above expressed and a further evi-dentiary hearing afforded petitioner if upon such reconsideration as we indicate the Commission is unable to resolve the matter on the present record. Moreover, as previously stated, an evidentiary hearing on the trafficking issue is required.

The case is reversed and remanded for further proceedings not inconsistent with this opinion.

1 . As amended, 74 Stat. 890, 47 U.S.C. § 309(d).

2 . The record indicates that in making the required survey seven letters from prominent citizens and local organizations were solicited by Crowder’s former “commercial manager.” These and eight other letters from organizations outside the business community were filed with the Commission. It developed that three of the solicited letters, though written on the letterhead of a local organization, were not official views of the organization, and the signers of these letters also disassociated themselves from some of the possible implications of the letters.

3 . The Commission’s brief, mistakenly we think, contends, or seems to do so, that this was a matter of discretion. To grant or not to grant a hearing is not a matter of Commission discretion. We think the Commission must be satisfied of an applicant’s ability to meet all fixed charges and operating expenses during the first year of operations, including staff expenses. A hearing is a matter of right when the criteria of the Act are satisfied by the protesting party.

4 . One of the bases for Commissioner Bartley’s dissent was the refusal of the Commission to order a hearing on this issue.

5 . He had maintained an interest in the station since 1946.

6 . These figures, taken from appellant’s petition to deny, are based in part on records of the Commission and are not disputed by Crowder.

7 . In his supplemental statement in the present proceeding Crowder stated that because his partner in the WLIV station was inexperienced he consented to hold a supervisory position termed “general manager.” He now states that the title was “not wholly descriptive,” for he was to serve in this capacity only during the preparatory stages of the application. Once the station was broadcasting he was to be an advisor on an “as-needed basis.” In.the present application Crowder also claims he will be a “general manager”; but this time it is urged that his personal expertise and participation in the venture are factors to be considered in granting the application.

8 . See note 4, supra.

9 . 74 Stat. 889, amending 47 U.S.C. § 309.

10 . Subsequent to Carroll and prior to Southwestern we decided KGMO Radio-Television, Inc. v. FCC, 119 U.S.App.D.C. 1, 3, 336 F.2d 920, 922, holding that the decision of the Commission denying a petition for reconsideration because the showing of the licensee did not comply with the requirements of Carroll standards, as construed by the Commission, was erroneous because, although “it is within the Commission’s authority to require more information than appellant gave * * * since appellant had no notice, in the Commission’s past decisions or otherwise, that more would be required, the petition should not be denied.” We remanded the case to the Commission.

11 . Intervenor’s application was filed October 4, 1961, and granted January 12, 1966.

12 . In addition to WHBT, Roane County also has another station, WKRH, operating at Rockwood, Tennessee, which is ten miles from Harriman.