James U. Steele v. Federal Communications Commission, Dale Bell, Intervenor , 770 F.2d 1192 ( 1985 )

TAMM, Circuit Judge:

The Federal Communications Commission (the “Commission”) extends preferential treatment to female applicants for FM radio stations in comparative evaluation proceedings. Appellant James U. Steele contends that this policy discriminates on the basis of sex in violation of the United States Constitution and is an agency action that is arbitrary, capricious, or otherwise unlawful under the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) (1982) (the “APA”). We do not reach the constitutional question because we find that in adopting the female preference policy, the Commission exceeded its statutory authority. We therefore declare the policy invalid, reverse the agency’s award of the construction permit to Bell, and remand the case for further proceedings consistent with this opinion.

I. Background

In 1981, appellant Steele and intervenor Bell filed mutually exclusive applications for construction permits for new FM broadcast facilities on channel 224A (92.7 MHz) at St. Simon’s Island, Georgia.¹ Channel 224A will be the first local broadcast outlet on St. Simon’s Island, a small resort community located off the coast of southeast Georgia.

Steele is originally from the South and plans to reside on St. Simon’s Island as full-time general manager of the station if he is awarded the construction permit. He holds B.S. and M.A. degrees in communications and has more than twenty years of broadcast experience in a variety of management and non-management positions at radio and television stations. Steele has never had an ownership interest in any broadcast facility or any other medium of mass communications.

Bell is also from the South and moved to St. Simon’s Island approximately one year before filing her application. She does not have a college degree, and her broadcast experience consists of four months at station WUFE-(AM), Baxley, Georgia, a facility owned by her father, Mr. Farnell O’Quinn. Bell holds stock in three family-owned cable television systems located in Georgia,² but she has committed to divest herself of these interests upon grant of her application. She plans to operate the new station as its full-time general manager. Her husband, Dewayne — who also owns the transmitter site and has committed joint funds for the project — has agreed to serve as his wife’s full-time assistant general manager at the station.

An Administrative Law Judge (“AU”) conducted comparative hearings to determine which applicant would best serve the public interest. The AU found that the relative advantages and disadvantages of each application were essentially offsetting but granted Bell’s application because her qualitative enhancement as an integrated female owner with past local residence overcame Steele’s enhancement for past broadcast experience.

Like the AU, the Review Board on appeal found that the merits of Steele’s and Bell’s applications were close. It found no differences between the two on the three factors of character, proposed program service, and past broadcast experience as an owner. Steele was accorded a “very slight comparative coverage preference” over Bell under the “efficient use of frequency” factor. The Board found the parties equal on the “primary objective” of “diversification of control of the media of mass communications” because the Board accepted Bell’s representations that she would sell her cable stock upon grant of her application and that the substantial broadcast interest of Bell’s family, while unrefuted, should not be attributed to her in the circumstances of this case. The Board also found Bell and Steele were equal with respect to the “quantitative” measure of integration of ownership and management. The “qualitative enhancements” awarded under the integration factor, then, became pivotal, and the Board concluded that Bell’s “credits for 100% female integration and past local residence” were superior to Steele’s “credits for previous broadcast experience and proposed future residence.” Joint Appendix (“J.A.”) at 20-33. In its conclusion, the Board stated that “[ujnder the comparative circumstances of this case, Bell’s 100% female integration is decisively important.” J.A. at 33 (emphasis added). The Commission affirmed the Review Board’s decision without opinion, J.A. at 34-35, but later characterized its denial of review in this case as one “where enhancement credit for female ownership proved to be decisive.” Horne Industries, Inc., 98 F.C.C.2d 601, 603 n. 3 (1984). Steele appeals the Commission’s decision.

II. The Commission’s Authority

A. The Scope of Review

The question confronting this court is whether the Commission exceeded its statutory authority by adopting a gender-based preference for comparative broadcast license proceedings. The APA, 5 U.S.C. § 706(2)(C) (1982), states that a “reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be in excess of statutory jurisdiction, authority, or limitations or short of statutory right.” In determining whether an action exceeds an agency’s statutory authority, the reviewing court’s task “necessarily entails a firsthand judicial comparison of the claimed excessive action with the pertinent statutory authority.” Western Union Telegraph Co. v. FCC, 541 F.2d 346, 354 (3d Cir.1976), cert. denied, 429 U.S. 1092, 97 S.Ct. 1104, 51 L.Ed.2d 538 (1977).

The Federal Communications Act of 1934 authorizes the Federal Communications Commission to regulate “communication by wire and radio so as to make available ... to all the people of the United States a rapid, efficient, Nation-wide, and worldwide wire and radio communication service.” 47 U.S.C. § 151 (1982). The Act further empowers the Commission to prescribe the qualifications of radio station operators and issue broadcasting licenses “as public convenience, interest, or necessity requires.” 47 U.S.C. § 303 (1982).

The public interest standard of the Act is not susceptible to precise definition. See FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 138, 60 S.Ct. 437, 439, 84 L.Ed. 656 (1940) (the standard “is as concrete as the complicated factors for judgment in such a field of delegated authority permit”). At the same time, however, the Supreme Court has recognized that Congress did not intend by the Act “to transfer its legislative power to the unbounded discretion of the regulatory body.” FCC v. RCA Communications, Inc., 346 U.S. 86, 90, 73 S.Ct. 998,1002, 97 L.Ed. 1470 (1953). See also National Broadcasting Co. v. United States, 319 U.S. 190, 216, 63 S.Ct. 997, 1009, 87 L.Ed. 1344 (1943) (public interest standard “ ‘not to be interpreted as setting up a standard so indefinite as to confer an unlimited power’ ”) (quoting Federal Radio Commission v. Nelson Brothers Co., 289 U.S. 266, 285, 53 S.Ct. 627, 636, 77 L.Ed. 1166 (1933)). Thus, while the Commission is entitled to deference in deciding how the public interest will best be served, a reviewing court must ensure that the Commission’s action “ ‘is based on consideration of permissible factors and is otherwise reasonable.’ ” FCC v. WNCN Listeners Guild, 450 U.S. 582, 594, 101 S.Ct. 1266, 1274, 67 L.Ed.2d 521 (1981) (quoting FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775, 793, 98 S.Ct. 2096, 2111, 56 L.Ed.2d 697 (1978)).

Under the Commission’s Policy Statement on Comparative Broadcast Hearings, 1 F.C.C.2d 393 (1965), the public interest standard encompasses as one of its primary goals “a maximum diffusion of control of the media of mass communications, generally referred to as diversification.” 1 F.C.C.2d at 394. See West Michigan Broadcasting Co. v. FCC, 735 F.2d 601, 604-06 (D.C.Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 1392, 84 L.Ed.2d 782 (1985). Diversification seeks not only to avoid undue concentration of media outlets in the hands of a few individuals or entities but also to promote diversity of programming and viewpoint. The promotion of diverse sources of information through diversification of media ownership is thus well established as an integral part of the Commission’s public interest mandate. See Citizens Communications Center v. FCC, 447 F.2d 1201, 1213 n. 36 (D.C.Cir.1971), clarified, 463 F.2d 822 (D.C. Cir.1972). The Supreme Court has recognized on several occasions the connection between diversity of ownership and the diversity of ideas and expression that is the basis of the first amendment. See, e.g., Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390, 89 S.Ct. 1794, 1806, 23 L.Ed.2d 371 (1969); Associated Press v. United States, 326 U.S. 1, 20, 65 S.Ct. 1416, 1424, 89 L.Ed. 2013 (1945); see also H.R.Rep. No. 765, 97th Cong., 2d Sess. 40 (1982), reprinted in 1982 U.S.Code Cong. & Ad.News 2237, 2261, 2284 (“The nexus between diversity of media ownership and diversity of programming sources has been repeatedly recognized by both the Commission and the courts.”). Thus, a vital component of the Commission’s public interest determination has been consideration of “the extent to which the ownership of the media will be concentrated or diversified by the grant of one or another of the applications before it.” Citizen’s Communications Center, 447 F.2d at 1213 n. 36.

B. The Commission’s Minority Preference Program

Based on the diversification rationale, this court in TV 9, Inc. v. FCC, 495 F.2d 929 (D.C.Cir.1973), cert. denied, 419 U.S. 986, 95 S.Ct. 245, 42 L.Ed.2d 194 (1974), held that “when minority ownership is likely to increase diversity of content, especially of opinion and viewpoint, merit should be awarded” to minority applicants in comparative hearings. 495 F.2d at 938. Since TV 9, the Commission, the courts, and Congress have recognized that fostering minority ownership, when it is fully integrated with station management, “is an important public policy objective within the FCC’s ‘public interest’ mandate.” West Michigan, 735 F.2d at 607 (citations omitted).³

In conformity with this policy, the Commission has developed a wide-ranging and comprehensive set of administrative devices and procedures designed to enhance minority ownership opportunities. The Commission now recognizes minority ownership and participation as an affirmative factor that enhances an applicant’s proposal in the comparative evaluation process. See WPIX, Inc., 68 F.C.C.2d 381, 410-12 (1978). The Commission also offers tax incentives for the sale of broadcast facilities to minorities and special “distress sale” relief enabling licensees designated for a hearing on character qualifications issues to apply for assignment of their licenses to minority purchasers. Statement of Policy on Minority Ownership of Broadcast Facilities, 68 F.C.C.2d 979 (1978). In addition, the Commission’s revised clear channel rules provide preferential treatment to minority-controlled candidates for new AM stations. Clear Channel AM Broadcasting, 78 F.C.C.2d 1345, recons. 83 F.C.C.2d 216 (1980), aff’d sub nom., Loyola University v. FCC, 670 F.2d 1222 (D.C.Cir.1982).

The Commission has also implemented a new, congressionally-mandated mass media lottery, or random selection scheme, as an alternative to the comparative hearing process. Random Selection Lotteries, Second Report and Order, 93 F.C.C.2d 952 (1983). The lottery system includes, consistent with express statutory authorization, special preferences for racial and ethnic minorities. See 47 U.S.C. § 309(i)(3)(A), (C)(iii) (1982); H.R.Rep. No. 765, 97th Cong., 2d Sess. at 40-41, 43-45 (1982), reprinted in 1982 U.S.Code Cong. & Ad.News at 2284-85, 2287-89. Under our decisions, the Commission’s authority to adopt minority preferences even apart from the lottery process — at least where such preferences are tied to minority participation in the management of broadcast facilities — is clear. See TV 9, Inc.; West Michigan.

III. The Female Preference Policy

In contrast to the Commission’s more comprehensive policy towards minorities, women receive preferential treatment only in comparative hearings for FM licenses. Although women do not receive the same degree of merit as would comparable minority applicants, the preference may still be outcome determinative.

The Communications Act does not mention a female preference policy⁴ nor has any court ordered its implementation. The Commission itself has never given plenary consideration to the issue.⁵ Rather, the policy had its genesis in a 1978 Review Board decision upon reconsideration in Gainesville Media, Inc., 70 F.C.C.2d 143 (Rev.Bd.1978). The Board stated that

[i]n our [original decision in this comparative case] we held that since there was no evidence in the record of the extent of female ownership in the mass media in Gainesville, we had no basis on which to conclude that such participation would achieve a public interest benefit. Upon further reflection, we now believe the better course is to consider female ownership and participation, despite the absence of record evidence regarding the ownership situations at other stations.

Id. at 149. This “further reflection,” however, did not alter the outcome of the proceeding, nor did the Board offer any reason, policy, fact, finding, or citation to explain or support the sudden and gratuitous announcement of its new preferential policy.⁶

Twelve days after its reconsideration opinion in Gainesville issued, the Board released its decision in Mid-Florida Television Corp., 70 F.C.C.2d 281 [69 F.C.C.2d 607] (Rev.Bd.1978), set aside on other grounds, 87 F.C.C.2d 203 (1981). In Mid-Florida, the Board attempted to supply the rationale missing from Gainesville:

We hold that merit for female ownership and participation is warranted upon essentially the same basis as the merit given for black ownership and participation, but that it is a merit of lesser significance. The basic policy considerations are the same. Women are a general population group which has suffered from a discriminatory attitude in various fields of activity, and one which, partly as a consequence, has certain separate needs and interests with respect to which the inclusion of women in broadcast ownership and operation can be of value. On the other hand, it is equally obvious that the need for diversity and sensitivity reflected in the structure of a broadcast station is not so pressing with respect to women as it is with respect to blacks— women have not been excluded from the mainstream of society as have black people. To the extent that any significant population group is more fully integrated into the society as a whole, the need to promote ownership-participation by the members of that group in broadcasting diminishes.

70 F.C.C.2d at 326. In neither Gainesville nor Mid-Florida did the Board make clear whether the policy’s primary purpose was to rectify past discrimination or to increase diversity of programming. The “separate needs and interests” language suggests that more female owners will enhance programming diversity. The language regarding female versus black exclusion from the mainstream and the lesser merit awarded females as a result point toward compensation for past discrimination. No further discussion of the basis for the female preference, however, appears in any subsequent decision of the Board or the Commission. The Commission now claims that it adopted the female preference solely because increased female ownership of broadcast facilities, like increased minority ownership, will promote the public interest in fostering diversity of viewpoint in the mass media.

To determine whether the rationale underlying the minority preference applies to a female ownership preference, we must examine the assumptions and premises upon which the minority preference rests. That task, however, is not simple for two reasons. First, the assumptions and premises themselves have never been critically examined by the courts, Congress, or the Commission. Second, to the extent that they are discernible, they run counter to the fundamental constitutional principle that race, sex, and national origin are not valid factors upon which to base government policy.

The minority preference rests on the assumptions that first, membership in an ethnic minority causes members of that minority to have distinct tastes and perspectives and, second, that these differences will consciously or unconsciously be reflected in distinctive editorial and entertainment programming. The validity of the first of these assumptions is not obvious on its face. There is no reason to assume, for example, that an Italian station owner would primarily program Italian operas or would eschew Wagner in favor of Verdi. Similarly, it is questionable whether a black station owner would program soul rather than classical music or that he would manifest a distinctively “black” editorial viewpoint. Indeed, to make such an assumption concerning an individual’s tastes and viewpoints would seem to us mere indulgence in the most simplistic kind of ethnic stereotyping.

Moreover, quite apart from the factual validity of this assumption, it is contrary to one of our most cherished constitutional and societal principles. That principle holds that an individual’s tastes, beliefs, and abilities should be assessed on their own merits rather than by categorizing that individual as a member of a racial group presumed to think and behave in a particular way. See, e.g., Loving v. Virginia, 388 U.S. 1, 11, 87 S.Ct. 1817, 1823, 18 L.Ed.2d 1010 (1967) (“Over the years, this Court has consistently repudiated ‘[distinctions between citizens solely because of their ancestry’ as being ‘odious to a free people whose institutions are founded upon the doctrine of equality.’ ”) (quoting Hirabayashi v. United States, 320 U.S. 81, 100, 63 S.Ct. 1375, 1385, 87 L.Ed. 1774 (1943)).

With respect to the second assumption, one would think that station owners — motivated primarily by the desire to turn a profit — would be more influenced in their programming decisions by the tastes, interests, and perspectives of the listening audience than by those tastes and perspectives perhaps attributable to their own ethnic backgrounds. For example, a hispanic station owner serving a predominantly white, middle-class suburban audience, aged thirty-five and up, would not necessarily program Latin or Caribbean music. To suggest that these dubious, ethnically-determined tastes will outweigh the economic imperative of what the audience wants to hear therefore strikes us as more than a little implausible.

In sum, the best that one can say is that the validity of these assumptions is a matter of degree or “reasonableness.” See TV 9, 495 F.2d at 938 (minority preference rests on a “reasonable expectation, not advance demonstration” that minority ownership and management, when integrated, will increase programming diversity). Whatever the merit of these assumptions as applied to cohesive ethnic cultures, it simply is not reasonable to expect that granting preferences to women will increase programming diversity. Women transcend ethnic, religious, and other cultural barriers. In their social and political opinions and beliefs, for example, women in fact appear to be just as divided among themselves as are men. Therefore it is not reasonable to expect that a woman would manifest a distinctly “female” editorial viewpoint. The editorial perspectives of the Washington Post and the New York Times, for example, seem close to identical, yet the former is published by a woman and the latter is not. Perhaps the Commission means to suggest, however, that if more women owned stations, they would program softer, more “feminine” music. Indeed, it is not clear which stereotype of women the Commission meant to indulge in adopting the female preference.

As we have noted, the constitutional prohibition of discrimination on the basis of race or sex is founded on the presumption that a person should be judged as an individual rather than as a member of a particular group, and that no assumptions can or should be made about an individual’s bent of mind merely because of a birth characteristic such as sex or race. Yet the Commission attempts to justify its policy solely by reversing this presumption and asserting precisely the opposite. Perhaps because the presumption is so questionable as a matter of fact and so offensive as a matter of principle, the Commission has been unable to offer any evidence other than statistical underrepresentation to support its bald assertion that more women station owners would increase programming diversity. Instead, a few Commission employees without any evidence, reasoning, or explanation, gratuitously decreed one day that female preferences would henceforth be awarded. See Gainesville Media, Inc., 70 F.C.C.2d 143 (Rev.Bd.1978). Presumably, the Board thought that it was a Good Idea and would lead to a Better World. Contrary to the Commission’s apparent supposition, however, a mandate to serve the public interest is not a license to conduct experiments in social engineering conceived seemingly by whim and rationalized by conclusory dicta. Were we to hold otherwise, we would be conceding that by simply identifying as statistically underrepresented a discrete social group, the Commission could grant members of that group preferential treatment in the name of diversity of programming. The question then would become not whether the Commission should have a special program for women, but why it should not also have one for the aged, the handicapped, labor unions, community organizations, and other “underrepresented” groups. To read the public interest mandate so broadly would in effect confer on the Commission the unbounded discretion that the courts have repeatedly held it does not possess. As the Supreme Court has stated, the criterion of the “public interest, convenience or necessity,” while giving the Commission wide discretion, “is not to be interpreted as setting up a standard so indefinite as to confer an unlimited power.” See National Broadcasting Co. v. United States, 319 U.S. 190, 216, 63 S.Ct. 997, 1009, 87 L.Ed. 1344 (1943); see also FCC v. RCA Communications, Inc., 346 U.S. 86, 90, 73 S.Ct. 998, 1002, 97 L.Ed. 1470 (1953).

We therefore hold that the Commission exceeded its authority under the Federal Communications Act by adopting a female preference in comparative broadcast proceedings, and we therefore declare the policy invalid. Accordingly, the Commission’s decision is reversed, and this case is remanded to the Commission for further proceedings consistent with this opinion.

So ordered.

1 . Originally, four candidates filed applications for a permit. One applicant dropped out at its own request in late 1981. The Commission denied the application of Cannon’s Point Broadcasting Company, the third applicant, at the time it denied Steele’s. The application of Cannon’s Point, however, was deemed inferior to both Steele’s and Bell’s by both the Administrative Law Judge (“ALJ”) and the Review Board. Cannon’s Point has not appealed the Commission’s decision or intervened in this case. Steele and Bell are thus the only remaining viable candidates for the permit.

2 . All together, the O’Quinn family owns, controls, or has applied for (1) four broadcast stations within a 30-mile radius; (2) eight stations within a 100-mile radius; (3) nine stations in the State of Georgia; and (4) three cable television systems also located in Georgia. Citing these and other factors, Steele requested the addition of real-party-in-interest and concentration-of-control issues in order to challenge the propriety of granting a female preference in this case. Joint Appendix ("J.A.”) at 43-54. The ALJ denied Steele’s request. The Review Board affirmed, but cautioned the O’Quinn family that its activities were "operating at the outer limits of what is permissible without an evidentiary hearing concerning regional concentration.” J.A. at 32.

3 . In West Michigan, we extended the rationale of TV 9 to sanction the Commission’s general policy of awarding special preferences to minority applicants who will participate fully in station management in comparative licensing proceedings. The appellants in West Michigan had argued that under TV 9, the only legitimate reason to promote minority ownership was to provide programming responsive to the previously unmet needs of a local minority population. We rejected this narrow reading of TV 9 because the goal of increasing diversity is a vital part of the Commission’s public interest mandate on both a local and a national level. Thus, we concluded that the FCC had properly granted a substantial enhancement to a minority FM station applicant. 735 F.2d at 609-11.

4 . In contrast to its endorsement of preferences for racial and ethnic minorities, Congress has been at best ambivalent about a female ownership preference. In 1981, Congress amended the Communications Act to empower the Commission to grant radio broadcasting licenses through the use of a system of random selection or lottery. Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35, 95 Stat. at 736-37 (the "1981 Amendment”). The 1981 Amendment required the Commission to adopt rules and procedures to ensure that "groups or organizations, or members of groups or organizations, which are underrepresented in the ownership" of broadcast facilities be granted significant preferences. The accompanying conference report explained that

[i]t is the firm intention of the conferees that ownership by minorities, such as blacks and hispanics, as well as by women, and ownership by other underrepresented groups, such as labor unions and community organizations, is to be encouraged through the award of significant preferences in any such random selection proceeding.

H.R.Rep. No. 208, 97th Cong., 1st Sess. 897 (1981), reprinted in 1981 U.S.Code Cong. & Ad. News 396, 1259 (the "1981 Conference Report”).

The Commission refused to implement the lottery system permitted by the 1981 Act, however, because it feared that preferences based solely on an applicant’s race or sex would be found unconstitutional. See Random Selection Lotteries, First Report and Order, 89 F.C.C.2d 257, 281 (1982). In response, Congress shortly thereafter amended section 309(i) and significantly narrowed the scope of the preference language. Section 309(i)(3)(A) now provides that

The Commission shall establish rules and procedures to ensure that, in the administration of any system of random selection ... used for granting licenses or construction permits for any media of mass communications, significant preferences will be granted to applicants or groups of applicants, the grant to which of the license or permit would increase the diversification of ownership of the media of mass communications. To further diversify the ownership of the media of mass communications, an additional significant preference shall be granted to any applicant controlled by a member or members of a minority group.

"Minority groups” are defined as "Blacks, Hispanics, American Indians, Alaska Natives, Asians and Pacific Islanders.” 47 U.S.C. § 309(i)(3)(C)(ii) (1982). Significantly, women are no longer identified as a specific group meriting a special preference in the revised statutory scheme.

Unlike the minority preference, therefore, we can find no clear congressional endorsement of the Commission’s female preference policy. Cf. West Michigan, 735 F.2d at 612-13 ("Congress made clear its approval of the Commission’s [minority] policy.”). Indeed, Congress’s withdrawal of the authority to award preferences to "underrepresented” groups such as women in the random lottery system might even be interpreted as indicating congressional disapproval of gender-based preferences in the comparative hearing process. We do not mean to suggest, of course, that explicit congressional approval is necessary to the validity of all Commission policies implemented under the public interest standard. Manifestations of congressional intent, however, are particularly relevant when we are called upon to review a Commission action that impacts on constitutionally protected interests. Cf. Kent v. Dulles, 357 U.S. 116, 129, 78 S.Ct. 1113, 1115, 2 L.Ed.2d 1204 (1958) (right to travel is a constitutionally protected liberty interest, and court will not readily infer that Congress gave Secretary of State unbridled discretion to grant or withhold it).

5 . The Commission has, however, considered the question of its authority to adopt a female preference in its random lottery system. See Random Selection Lotteries, Third Notice of Proposed Rulemaking, 95 F.C.C.2d 432 (1983). Noting that it had not as yet "developed a complete record as to the nexus between past discrimination and women's ownership of broadcast facilities,” the Commission in the Third Notice sought comments as to “whether the Commission is itself competent to make such findings, or whether Congressional action is required.” Id. at 439.

6 . Only five months earlier, the Board had reached a contrary conclusion in its original disposition of this case:

While the Commission does have a stated goal of promoting equal opportunities in employment for minorities and women, its goals in this area apply to employment practices of licensees and permittees. Generally, they do not relate to ownership, and they do not provide a basis for a preference in a comparative hearing.

70 F.C.C.2d at 66.