Kay, James A. v. FCC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 6, 2004 Decided February 1, 2005
No. 02-1175
JAMES A. KAY, JR.,
APPELLANT
v.
FEDERAL COMMUNICATIONS COMMISSION,
APPELLEE
Consolidated with
No. 04-1045
Appeals of Orders of the
Federal Communications Commission
Barry Richard argued the cause for appellants. With him
on the briefs were Elliot H. Scherker. Robert J. Keller, and
Aaron P. Shainis.
Roberta L. Cook, Counsel, Federal Communications
Commission, argued the cause for appellee. With her on the
brief were John A. Rogovin, General Counsel, Austin C. Schlick,
Deputy General Counsel, and Daniel M. Armstrong, Associate
General Counsel. Jane E. Mago, Assistant General Counsel,
entered an appearance.
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Before: EDWARDS, SENTELLE, and RANDOLPH, Circuit
Judges.
Opinion for the Court filed by Circuit Judge RANDOLPH.
RANDOLPH, Circuit Judge: These are consolidated appeals
from orders of the Federal Communications Commission
sanctioning James A. Kay, Jr., and Marc D. Sobel for
intentionally trying to mislead the Commission, and for
engaging in an unauthorized transfer of control of Sobel’s land
mobile service facilities. Kay and Sobel argue that the
administrative record does not contain substantial evidence to
support the orders.
I.
Since the early 1980’s Kay has provided two-way radio
mobile service in the Los Angeles area through a sole
proprietorship -- Lucky’s Two-Way Radio. He held many land
mobile licenses pursuant to Part 90 of the Commission’s rules,
47 C.F.R. § 90.1 et seq., including 34 licenses in the 800 MHz
band. Sobel also was involved in the land mobile business in
and around Los Angeles. He too held licenses for commercial
land mobile radio stations, including 15 licenses on the 800
MHz band.
In the early 1990’s the Commission received information
that Kay might have been evading certain regulatory restrictions
by conducting business under other names. One of the names
was “Marc Sobel dba Airwave Communications.” Other
information suggested additional violations. The Commission
may require licensees to submit written statements of fact
bearing on the question whether their licenses should be
revoked. 47 U.S.C. § 308(b). To that end, the Commission’s
Wireless Telecommunications Bureau sent Kay a letter in
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January 1994 requesting several categories of information,
including the identity of the stations for which Kay held
licenses and the stations Kay managed. Kay’s lawyer responded
with a series of demands and complaints, but supplied none of
the information the Bureau sought.
In December 1994 the Commission issued an order
designating issues for a hearing, including: (1) whether Kay had
violated § 308(b) by failing to provide the information
requested; (2) whether he had willfully violated Commission
rules governing station construction and operation; (3) whether
he had abused the Commission’s processes by filing applications
in multiple names to avoid complying with the channel sharing
and recovery rules; and (4) whether, in view of the evidence
adduced on those issues, Kay was fit to be a licensee. The order
identified 164 call signs subject to the hearing, eleven of which
were held in Sobel’s name.
About one month later, in January 1995, Kay filed a
sixteen-page motion with the administrative law judge assigned
to the case. Among other things, the motion requested deletion
of Sobel’s call signs from the hearing designation order. Kay’s
motion stated:
James A. Kay, Jr. is an individual. Marc Sobel is a
different individual. Kay does not do business in the name
of Marc Sobel or use Sobel’s name in any way. As shown
by the affidavit of Marc Sobel attached as Exhibit II hereto,
Kay has no interest in any of the licenses or stations held by
Marc Sobel. Marc Sobel has no interest in any of the
licenses or stations authorized to Kay or any business entity
in which Kay holds an interest. Because Kay has no
interest in any license or station in common with Marc
Sobel and because Sobel was not named as a party to the
instant proceeding, the presiding officer should either
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change the [Order] to delete the reference to the stations
identified as stations 154 through 164 . . . or should dismiss
the [Order] with respect to those stations.
In a signed affidavit accompanying his motion, Kay declared
under penalty of perjury that the statements in the motion were
“true and correct.”
Sobel’s affidavit, attached to the motion, stated:
I, Marc Sobel, am an individual, entirely separate and
apart in existence and identity from James A. Kay, Jr. Mr.
Kay does not do business in my name and I do not do
business in his name. Mr. Kay has no interest in any radio
station or license of which I am the licensee. I have no
interest in any radio station or license of which Mr. Kay is
the licensee. I am not an employer or employee of Mr.
Kay, am not a partner with Mr. Kay in any enterprise, and
am not a shareholder in any corporation in which Mr. Kay
also holds an interest. I am not related to Mr. Kay in any
way by birth or marriage.
The ALJ certified the matter to the Commission and the
Commission deleted Sobel’s licenses from the Kay proceeding.
Kay Modified HDO, 11 F.C.C.R. 5324 (1996). Thereafter, on
June 11, 1996, the Bureau sent a § 308(b) letter of inquiry to
Sobel, asking him for information about his business
relationship with Kay. Sobel Order, 17 F.C.C.R. 1872, 1873 ¶ 4
(2002). In his response, dated July 3, 1996, Sobel attached a
“Radio System Management and Marketing Agreement.” The
Management Agreement, originally executed by Sobel and Kay
in October 1994 and re-executed on December 30, 1994, set out
the terms under which Kay had been managing, during the
previous three years, fifteen of Sobel’s stations, licensed on the
800 MHz band. (Kay had given the Bureau a copy of the same
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agreement on March 24, 1995, in response to the Bureau’s
discovery request seeking all management agreements to which
Kay was a party.)
By early 1997, Sobel had 13 license applications pending
with the Commission. Rather than grant any of them, the
Commission designated them, and the licenses Sobel already
held, for a hearing to determine whether Sobel had transferred
control of the stations named in the Agreement to Kay, in
violation of § 310(d) of the Communications Act, 47 U.S.C.
§ 310(d). Marc Sobel, 12 F.C.C.R. 3298, 3300 (1997). Section
310(d) provides that no “station license, or any rights
thereunder, shall be transferred . . . 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.” The Commission later added another
issue: whether Sobel had misrepresented facts or lacked candor
in the affidavit he submitted in support of Kay’s January 1995
motion to remove Sobel’s licenses from the Kay hearing. Marc
Sobel, FCC 97M-82 (released May 8, 1997).
Sobel’s hearing, in which Kay intervened, was the first to
be completed. See Marc Sobel, 12 F.C.C.R. 22879 (ALJ 1997).
ALJ Frysiak determined that Sobel had illegally transferred
control of the stations identified in the Management Agreement.
The evidence showed that Kay was managing the stations; that
Kay had prepared Sobel’s license applications; that Kay
provided all the money and equipment to build the stations; that
Kay’s employees were involved in nearly all aspects of the day-
to-day operation of the stations; that Kay paid all the expenses
of the stations; that the revenues from operations went into
Kay’s bank accounts; that Sobel received none of the operating
revenues; and that Kay had an option to purchase each of the
stations at any time for $500 each. 12 F.C.C.R. at 22901. ALJ
Frysiak also found that, in light of this evidence, Sobel’s
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statement in his affidavit that Kay had “no interest” in any of his
radio stations or licenses was “intended to mislead and deceive
the Commission with respect to Kay’s actual role in the affairs
of Sobel’s 800 MHz stations.” The evidence also showed that
Sobel, in response to problems identified in his applications,
provided the Commission with customer invoices for the
stations listed in the Agreement. On the invoices, Kay had
masked out the name and address of “Lucky’s Two Way
Radio”-- a name under which Kay conducts business. ALJ
Frysiak found that both Sobel and Kay thought it crucial to
withhold this information, which would have revealed to the
Commission that Kay and Sobel were “not as independent of
one another as Sobel has claimed.” Id. at 22902, 22898-99. The
ALJ concluded that all of Sobel’s licenses designated for the
hearing should be revoked and that his applications should be
denied.
Nearly two years after the ALJ’s decision in Sobel’s case,
ALJ Chachkin issued his decision in Kay’s case. James A. Kay,
Jr., FCC 99D-04, 1999 WL 700534, ¶ 223 (ALJ, released Sept.
10, 1999). ALJ Chachkin accepted the ruling in the Sobel case
that Kay had participated in an unauthorized transfer of control
of Sobel’s stations. But he found “entirely credible” Kay’s and
Sobel’s testimony that they had not intended to deceive the
Commission about their business arrangement. ALJ Chachkin
also accepted as “entirely reasonable and credible” Kay’s
testimony that when his motion stated he had no “interest” in
Sobel’s “licenses or stations,” he meant that he had no
“ownership interest” in any “station license” held by Sobel. He
discounted the findings in the Sobel hearing, believing them
“tainted” because the Bureau had “deliberately concealed” from
ALJ Frysiak the fact that Kay had produced the Agreement in
March 1995, in response to a discovery request. Id. at ¶¶ 168-
69, 210.
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The Commission considered the Sobel and Kay cases
concurrently and issued decisions in both cases on the same day.
For reasons we will discuss in a moment, the Commission found
that Sobel had engaged in an unauthorized transfer of control of
the stations listed in the Agreement, in violation of § 310(d), that
Sobel and Kay lacked candor when they denied that Kay had an
interest in Sobel’s stations, and that Kay violated § 308(b) when
he failed to provide information the Bureau requested. One
Commissioner dissented from the findings regarding lack of
candor and § 308(b). As sanctions for Sobel’s two violations,
the Commission revoked his licenses listed in the Management
Agreement, and denied all of his pending 800 MHz applications.
With respect to Kay, the Commission revoked his 25 licenses in
the 800 MHz band and assessed a $10,000 forfeiture for failing
to comply with § 308(b). (Kay does not challenge the
forfeiture.)
II.
We will discuss first the Commission’s determination that
there had been an unauthorized transfer of control of Sobel’s
stations to Kay, in violation of § 310(d), a determination that
bears heavily on the lack of candor question. Kay and Sobel
argue that there is no substantial evidence that they engaged in
a transfer of control because Sobel retained a proprietary interest
in the stations, had unfettered access to the facilities, regularly
visited the transmitter sites and gave Kay only an option to
purchase the stations.
The evidence Kay and Sobel mention may point against the
Commission’s conclusion, but that is not the test. “Substantial
evidence,” in the sense used in the Administrative Procedure
Act, 5 U.S.C. § 706(2)(E); see 47 U.S.C. § 402(e), is the amount
of evidence constituting “‘enough to justify, if the trial were to
a jury, a refusal to direct a verdict when the conclusion sought
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to be drawn . . . is one of fact for the jury.’” Illinois Cent. R.R.
v. Norfolk & W. Ry., 385 U.S. 57, 66 (1966), quoting NLRB v.
Columbian Enameling & Stamping Co., 306 U.S. 292, 300
(1939); see Ass’n of Data Processing Orgs., Inc. v. Bd. of
Governors of the Fed. Reserve Sys., 745 F.2d 677, 684 (D.C.
Cir. 1984). Adhering to its decision in Intermountain
Microwave, 24 Rad. Reg. (P&F) 983, 984 (1963), the
Commission considered evidence bearing on six factors to
determine whether Sobel had transferred control of the
Management Agreement stations to Kay. On the first factor, it
agreed with Sobel that he had unfettered access to the stations.
On the second factor -- who controls the daily operations of the
stations -- the evidence was overwhelming that Kay did. The
Management Agreement provided as much: Kay’s duties
included “all administrative and office functions” and “all
management functions.” In addition, under the Agreement Kay
was the “sole and exclusive supplier of all equipment and
labor.” The third Intermountain factor asks who determines and
carries out policy decisions and prepares and files applications
with the Commission. The evidence showed that Kay prepared
Sobel’s applications, set billing rates, and arranged for the
acquisition of stations. The fourth factor asks who is in charge
of personnel. Sobel had no employees; all of the employees at
the Management Agreement stations were Kay’s. The fifth
factor asks who is in charge of financing. Here again the
evidence showed that Kay was in charge. For instance, the
Management Agreement relieved Sobel of liability for the
operation and construction of the stations; Kay paid all the
operating expenses; and Kay purchased all the equipment. The
sixth Intermountain factor asks who receives profits from the
operation of the stations. The Commission pointed to evidence
that all revenues from operation of the stations had been
deposited into Kay’s account and that Sobel had received
nothing in his capacity as an owner of the stations. Under the
Management Agreement, revenues could be shared equally
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between Kay and Sobel if the stations generated enough profit,
but that had not occurred. The Commission viewed this
arrangement as “in the manner of partners.” Sobel Order, 17
F.C.C.R. 1872, 1884 ¶ 45 (2002).
In the face of this evidence, there is no doubt that a
reasonable jury, instructed on the law set forth in Intermountain,
could have reached the same conclusion as the Commission --
that Sobel had transferred control of his stations to Kay without
Commission authorization. See Allentown Mack Sales & Serv.,
Inc. v. NLRB, 522 U.S. 359, 366-67 (1998).
This brings us to the Commission’s finding that Kay and
Sobel lacked candor with respect to their business relationship.
Because effective regulation depends on the information
licensees provide to the Commission, see Leflore Broadcasting
Co., v. FCC, 636 F.2d 454, 461 (D.C. Cir. 1980), the
Commission defines lack of candor to include not only
providing false information but also “concealment, evasion or
other failure to be fully informative accompanied by an intent to
deceive.” Trinity Broad. of Fla., Inc., 10 F.C.C.R. 12020, 12063
(1995). While Kay and Sobel have several arguments against
the Commission’s lack of candor findings, their principal
contention is that they did not intend to deceive and that the
Commission erred in not accepting ALJ Chachkin’s finding that
their testimony to this effect was credible.
The law is settled that an agency is not required to adopt the
credibility determinations of an administrative law judge. This
much follows from § 557(b) of the APA: “On appeal from or
review of the initial decision, the agency has all the powers
which it would have in making the initial decision . . . .” On
questions of facts, an agency reviewing an ALJ decision is not
in a position analogous to a court of appeals reviewing a case
tried to a district court. See Rule 52(a), FED. R. CIV. P. The
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Supreme Court, in Universal Camera Corp. v. NLRB, 340 U.S.
474 (1951), rejected the idea that an agency must accept an
ALJ’s findings unless those findings are clearly erroneous. This
is so even if the ALJ’s findings rested on his evaluation of the
credibility of the witnesses. FCC v. Allentown Broad. Corp.,
349 U.S. 363-64 (1955). Although the agency may give much
weight to an ALJ’s credibility determinations, the question for
the reviewing court remains the same whether the agency agrees
or disagrees with the ALJ -- is the agency’s decision supported
by substantial evidence. The rejected factual determinations of
the ALJ are simply a factor for the reviewing court to consider
in its substantial evidence inquiry. See Universal Camera, 340
U.S. at 496-97; Swan Creek Communications, Inc. v. FCC, 39
F.3d 1217, 1222 (D.C. Cir. 1994); WHW Enters., Inc. v. FCC,
735 F.2d 1132, 1141 (D.C. Cir. 1985).
Here, of course, the Commission faced conflicting findings
by two ALJs who heard essentially the same testimony. Kay
and Sobel stress that only ALJ Chachkin made express
credibility determinations. This is true, but it does not render his
findings more deserving of credit. As the Commission
recognized, ALJ Frysiak’s findings clearly rested on his
disbelief of Kay’s and Sobel’s testimony. FCC Decision (James
A. Kay), 17 F.C.C.R. 1834, 1860 ¶ 86 (2002). Nor did the
Commission err in rejecting the ALJ Chachkin’s findings on the
ground that the proceedings before ALJ Frysiak were somehow
tainted in view of the Bureau’s failure to reveal that Kay, in
response to a production of documents request, had given a copy
of the Management Agreement to the Bureau at the end of
March 1995. ALJ Chachkin made much of this supposed
“scheme” and accused the Bureau of misleading ALJ Frysiak.
The Commission gave two responses, both of which were
sufficient. First, Kay’s production of the Agreement in March
was not material. It is conceded that neither he nor Sobel
supplied a copy of the Agreement with the January 1995
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pleading and affidavit that stands at the center of their lack of
candor. Second, the record shows that Sobel brought Kay’s
production to ALJ Frysiak’s attention. He requested the Bureau
to admit receiving the document (ALJ Frysiak denied the
request as irrelevant) and he requested the ALJ to take official
notice of Kay’s production.
As to the rest of the evidence bearing on lack of candor, the
record as a whole demonstrates ample support for the
Commission’s conclusions. The affidavit and the pleading were
false and misleading. Kay, in the pleading, and Sobel, in his
affidavit, denied that Kay had any “interest” in Sobel’s licenses
and stations. As the evidence relating to transfer of control
shows, Kay had a very substantial interest in Sobel’s stations.
Kay and Sobel testified that when they used the word “interest”
they meant an ownership interest and that their statements were
therefore accurate because Sobel retained ownership of his
licenses. But what of the stations? According to their
testimony, they meant to refer only to ownership of Sobel’s
radio station licenses, not the stations themselves. Excerpts
from July 29, 1997 Hearing Transcripts in WT Docket No. 97-
56, reprinted in JA 532 (testimony of Marc Sobel); Excerpts
from Jan. 19, 1999 Trial Transcript in WT Docket No. 94-147,
reprinted in JA 1043 (testimony of James Kay). The
Commission was entitled to reject that testimony. At the least,
the Commission could find that the statements they filed were
misleading and intentionally so. The sheer implausibility of
their explanations; their motive to divert the Bureau’s
investigation, which threatened to uncover the unauthorized
transfer of control; the fact that they discussed the meaning of
the word “interest” before they filed the pleading and affidavit;
the fact that Kay told Sobel the word meant “a direct financial
stake,” which describes Kay’s relationship to Sobel’s stations --
all this, and more, convince us that substantial evidence
supported the Commission’s findings of lack of candor. In other
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respects the Commission found the statements filed in January
1995 misleading, but it is unnecessary to discuss why we find
substantial evidence to support those findings. It is enough to
point out that “the Commission must rely heavily on the
completeness and accuracy of the submissions made to it, and its
applicants in turn have an affirmative duty to inform the
Commission of the facts it needs in order to fulfill its statutory
mandate.” RKO Gen., Inc. v. FCC, 670 F.2d 215, 232 (D.C. Cir.
1981). The Commission reasonably concluded that Kay and
Sobel intentionally failed to perform their affirmative duty in
their attempt to remove Sobel’s licenses and stations from the
original hearing on Kay’s fitness to be a licensee.
Affirmed.