******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In re Application of ) MM Docket No. 85-269 ) DOROTHY O. SCHULZE and ) File No. BPCT-850320KG DEBORAH BRIGHAM, A General ) Partnership ) ) For a Construction Permit for ) a New Television Station ) at Blanco, Texas ) MEMORANDUM OPINION AND ORDER Adopted: January 29, 1997 ; Released: February 28, 1997 By the Commission: Chairman Hundt concurring and issuing a statement. 1. This order denies a Joint Petition for Leave to Amend and for Grant of Application, filed November 9, 1995, by Dorothy O. Schulze and Deborah Brigham, A General Partnership (DSDB) and SL Communications, Inc. (SL) (collectively Petitioners), which seeks to terminate this proceeding by substituting SL for DSDB as the applicant. We find that Petitioners have not shown good cause for accepting such an amendment. This order also denies reconsideration of the denial of DSDB's application. I. BACKGROUND 2. DSDB is the remaining applicant in what was once a three-party comparative proceeding for a new UHF television station on Channel 52 in Blanco, Texas. Despite over 10 years of litigation, no applicant has been found qualified to receive a grant. The application of Opal Chadwell was dismissed for failure to prosecute after being remanded for hearings on a financial qualifications issue. Opal Chadwell, FCC 89M-1568 (Jun. 2, 1989), appeal dismissed, 5 FCC Rcd 7381 (Rev. Bd. 1990), rev. denied, 6 FCC Rcd 4218 (1991), recon. dismissed, 6 FCC Rcd 6981 (1991). The Commission denied the application of Blanco Communications, Ltd. for misrepresentation. Dorothy O. Schulze and Deborah Brigham, A General Partnership, 8 FCC Rcd 442 (1993). That decision was affirmed by the Court of Appeals and is therefore final. Blanco Communications , Ltd. v. FCC, No. 93-1172 (D.C. Cir. Jun. 3, 1994). 3. As to DSDB, the Review Board found that this applicant was disqualified because of misrepresentations concerning two matters. Opal Chadwell, 2 FCC Rcd 5502 (Rev. Bd. 1987), rev. granted in part, 4 FCC Rcd 1215 (1989), recon. granted in part, 5 FCC Rcd 3227 (1990). According to the Board, DSDB's principal, Dorothy O. Schulze, (Schulze), made misrepresentations to conceal the fact that her brother, Richard Ozan, was the real-party-in- interest in this and other applications. 2 FCC Rcd at 5508-09  30-31. The Board also found that Schulze condoned false testimony from a witness named Ron Baptist regarding the transmitter site specified in another Schulze application. Id. at 5510  34-36. The Commission denied review of the Board's decision as to these matters without comment. 4 FCC Rcd at 1217  22. 4. Subsequently, the Commission stayed the denial of DSDB's application and held DSDB's petition for reconsideration in abeyance pending the outcome of a separate comparative proceeding regarding a station in Conroe, Texas, in which Richard Ozan was also alleged to be an undisclosed real-party-in-interest. 5 FCC Rcd at 3227-28  6-10. The Conroe proceeding involved another Ozan-related application, G-A Communications, Inc. (GAC), the principal of which was JoAnn Garcia, whose testimony in support of DSDB regarding Ozan's role had been rejected by the Blanco Administrative Law Judge (ALJ). 5. In reviewing the Conroe proceeding, the Board noted that the Conroe ALJ, unlike the Blanco ALJ, had credited Garcia's testimony regarding Ozan. Imagists, 4 FCC Rcd 3749 (Rev. Bd. 1989). To reconcile these disparate findings, the Board remanded the Conroe proceeding and directed the Conroe ALJ to further consider whether Garcia had testified truthfully in both the Conroe and Blanco proceedings. After the remand, the Conroe ALJ found, as had the Blanco ALJ, that Garcia's testimony should not be credited. Imagists, 6 FCC Rcd 2963 (I.D. 1991). The Review Board and the Commission affirmed this finding. Imagists, 6 FCC Rcd 7440 (Rev. Bd. 1991), rev. granted in part on other grounds, 8 FCC Rcd 2763 (1993). GAC, which was represented by the same counsel as DSDB, dismissed its judicial appeal of the Conroe ruling, and the ruling is, thus, final. 6. In holding DSDB's petition for reconsideration in abeyance in light of the Board's remand of Conroe, the Commission stated that DSDB would be permitted to update its pleading after the Board issued a further decision in Conroe. 5 FCC Rcd at 3228  10. The Board's decision issued on December 23, 1991. DSDB did not, however, supplement its pleadings in response to the Board's decision. Instead, nearly four years later, it has filed the petition now before us. II. PETITION 7. Petitioners submit an agreement between DSDB and SL under which DSDB would amend its application to substitute SL as the applicant in return for a payment of $226,854. DSDB indicates that this sum is less than its reasonable and prudent expenses in prosecuting its application. Petitioners assert that approval of the agreement and acceptance of the amendment would serve the public interest by eliminating the need for any further litigation in what has been an extremely protracted proceeding and by permitting the expeditious commencement of service by a qualified permittee. Petitioners also seek to amend the proposed transmitter site and ask the Commission to vacate the adverse decision against DSDB, which would become moot. Petitioners contend that their proposal comports with the Commission's policies relating to third-party buyouts, set forth in Rebecca Radio of Marco, 4 FCC Rcd 830 (1989), modified, 5 FCC Rcd 937 (1990), recon. denied, 5 FCC Rcd 2913 (1990), and James U. Steele, 4 FCC Rcd 4700 (1989), reaffirmed, 5 FCC Rcd 4121 (1990). 8. The Mass Media Bureau opposes the petition. The Bureau urges the Commission to look beyond the form of the proposed transaction, i.e., the amendment of the application, to substitute SL as the applicant, and grant of the amended application. The Bureau would have the Commission treat the transaction as the grant of DSDB's application followed by an assignment of the construction permit to SL. The Bureau contends that the transaction cannot be approved, because DSDB cannot be found qualified to receive a grant and therefore has nothing to assign to SL. Petitioners respond by pointing out that in Rebecca Radio, the Commission initially approved a settlement structured like that of Petitioners. Petitioners assert that, although the Commission later reversed its approval of the agreement, it did so for reasons irrelevant here. III. DISCUSSION A. Petition for leave to Amend 9. We agree with the Bureau that it would elevate form over substance to ignore the fact that this relief is the equivalent of granting DSDB's application and authorizing an assignment of the construction permit to SL. The Petition itself acknowledges this: While the parties have styled the proposed transaction as an amendment to DSDB's application, it also includes elements of an assignment of an unbuilt station. . . . Therefore, the parties request that the Commission's consent of this Petition operate as would Commission consent to an assignment application. . . . Petition at 4-5. It is appropriate to consider whether DSDB's request should be approved if it is considered as an assignment application. Ignoring the ramifications of a transaction by elevating form over substance is unwarranted. See RKO General, Inc. (KHJ-TV), 3 FCC Rcd 5057, 5061  27 (1988). DSDB has not shown itself qualified to receive the grant of a construction permit and has nothing to assign. See id. at 5063  41 (a construction permit will be awarded only to a qualified applicant with a good faith intention to construct and operate the station). Given these circumstances, there is no good cause -- as is required by 47 C.F.R.  73.3522(b) -- for accepting an amendment to DSDB's application. Rebecca Radio, relied on by Petitioners, did not involve the fundamental difficulty posed by the absence of a qualified applicant. Thus, DSDB's request contravenes Commission policy and will be denied. B. Petition for Reconsideration 10. Because we will deny Petitioners' requested relief, it becomes appropriate to consider the other pending matters. DSDB's petition for reconsideration argued that new circumstances undermine the basis for its disqualification. It challenged the finding that Schulze lied about Ozan's role, based on the discrepancy between the findings in this case and the initial findings of the ALJ in the Conroe proceeding. DSDB supplemented its petition by citing evidence, some of it new, which DSDB claims raises questions about the credibility of adverse witnesses, notably its former counsel Thomas L. Root and Ron Baptist, who worked with Root. DSDB contends: (1) the ALJ erred in finding Root a credible witness because he had been indicted and subsequently convicted of numerous counts of fraudulent activities before the Commission (see The Petroleum V. Nasby Corp., 11 FCC Rcd 3494  3 (1996)); (2) Root's testimony is further suspect because of circumstantial evidence in the Blanco record that he lied about a subsidiary matter as to which he testified involving an application filed for Fort Worth, Texas; and (3) an affidavit by Victor M. Glasberg proffered by DSDB undermines the credibility of both Root and Baptist. As to Baptist's claim that Schulze condoned false testimony about the transmitter site, DSDB notes that after a preliminary investigation, the Virginia State Bar dismissed a complaint against DSDB's attorney, which had been based on the ALJ's adverse findings as to this matter. Letter from Michele Anne Gillette, Assistant Bar Counsel to Donald E. Martin, Esq. (Mar. 15, 1989). DSDB also accuses Baptist of lying about this matter to protect Root. 11. We held these matters in abeyance because the Board remanded the Conroe proceeding for further hearings. We anticipated that, once the Board issued a further decision in the Conroe proceeding, DSDB would supplement its petition so that we would have both proceedings before us and could resolve them in an appropriately consistent manner. 5 FCC Rcd at 3228  10. After the remand, the Conroe ALJ found that the Conroe applicant, like DSDB, was unqualified, thereby eliminating the discrepancy between the two proceedings. In affirming the ALJ's supplemental initial decision, the Board specifically held that the ALJ had been justified in relying on the testimony in the Blanco proceeding of Root and Baptist, challenged by DSDB, and on testimony by Ozan. The Board found that the testimony of these three witnesses, which applied to both Blanco and Conroe: "[was] not only internally corroborated, it [was] supported by documentary evidence in [the Conroe] proceeding." 6 FCC Rcd at 7445  21. 12. As noted above, DSDB, which was represented by the same counsel as the Conroe applicant, did not supplement its response to address the Board's adverse findings. Although DSDB was aware that the Commission and the Board sought to reconcile the findings in the Blanco and Conroe proceedings, DSDB made no effort to argue that the Board's findings should not apply to DSDB. Moreover, DSDB did not object when the Commission proceeded to deny review of this aspect of the Board's Conroe decision without reference to the Blanco proceeding. Indeed, circumstances suggested that both DSDB and the Conroe applicant had stopped prosecuting their applications. On February 22, 1994, counsel ceased representing the Conroe applicant, which thereupon withdrew its judicial appeal. G-A Communications, Inc. v. FCC, No. 93-1332 (D.C. Cir. Aug. 17, 1994) (Order); G-A Communications, Inc. v. FCC, No. 93-1332 (D.C. Cir. Jun. 27, 1994) (Motion). By that time, the same counsel had already notified the Commission that he no longer represented DSDB. Motion of Counsel to Withdraw, filed January 31, 1994. While DSDB did not withdraw its pending pleadings, it remained silent for nearly four years. 13. Although, under these circumstances, we question whether DSDB's pending pleadings should be considered viable, we will nevertheless address the matters they raise (which of course do not take into account the subsequent actions in the Conroe proceeding). DSDB's principal argument, that the findings in this proceeding should be reexamined in light of the inconsistent findings made in Conroe, has been mooted by the supplemental Conroe decisions. DSDB's arguments regarding Root's credibility raise a more serious question. His convictions for felonies involving fraud represent a valid basis to impeach his credibility. SeeFed. R. Evid. 609(a). Despite this factor, however, the Board gave adequate reasons for crediting Root's testimony, and we denied GAC's application for review of the Board's decision. 8 FCC Rcd at 2763. By the time the Board rendered its decision, on December 23, 1991, Root had already entered pleas in state and federal court of no contest and guilty to charges of fraud and conspiracy. The Petroleum V. Nasby Corp., 10 FCC Rcd 6029, 6030  6 (Rev. Bd. 1995); Application for Review of G-A Communications, Inc., filed January 22, 1992, at 7 n.6. The Board initially rejected the Conroe applicant's arguments that Root's credibility had been undermined by his pleas in an interlocutory order. See Application for Review of G-A Communications, Inc., filed January 22, 1992, at 7. 14. Subsequently, in its decision, the Board spelled out the reasons that Root's testimony in this proceeding was credible. The Board found that Root's testimony was corroborated by the testimony of two other witnesses and by documentary evidence. The Board also found that Root had no motive to fabricate the relevant testimony. 6 FCC Rcd at 7445  23. Moreover, the Board properly gave weight to negative findings by the Blanco and Conroe ALJs as to the credibility of the witnesses testifying contrary to Root. Id. at 7446  26. Thus, the Board had an ample basis to exercise its discretion to accept Root's testimony even though questions existed about his credibility. The Commission therefore denied review of the Board's decision. See Dorothy O. Schulze and Deborah Brigham, A General Partnership, 8 FCC Rcd 442, 444  21-24 (1993) (Commission exercises discretion to accept testimony of witness although that witness had lied about another matter). DSDB did not provide any additional reasons in this proceeding to overturn the Board's decision in Conroe, although it had been invited to address that decision. Root's convictions, therefore, do not warrant reconsideration of our previous denial of review of the Board's decision finding DSDB disqualified. 15. Similarly, DSDB's evidence regarding Root's testimony concerning the Fort Worth application and regarding the Glasberg affidavit does not justify reconsideration. This evidence is not new and consequently does not represent an appropriate basis to seek reconsideration of an order denying an application for review. See 47 C.F.R.  1.106(b)(2); 1.115(g). In any event, for the reasons set forth above, we find that questions regarding Root's credibility do not warrant reconsideration. With respect to the Glasberg affidavit, the Board found in its earlier decision in this proceeding that there was no inconsistency between Baptist's statements reported by Glasberg and Baptist's testimony. 2 FCC Rcd at 5512 n.8. Thus, there is no reason to question Baptist's credibility on this ground. Additionally, the fact that Baptist admits that he recanted his original testimony about the transmitter site because it was harmful to Root does not warrant an inference that his testimony was tainted because of the connection with Root. The ALJ properly evaluated Baptist's credibility in it own right; it is not impugned by "guilt by association" with Root. In sum, we find no basis to reconsider the denial of DSDB's application. 16. We give no weight to the action of the Virginia State Bar dismissing the complaint against DSDB's attorney. The Commission has conducted a full evidentiary hearing as to relevant matters and found that a preponderance of the evidence establishes misconduct by DSDB. The Bar, by contrast, does not indicate in its letter how it arrived at the conclusion that the evidence available in its preliminary investigation would not support a finding of misconduct by clear and convincing evidence. Moreover, the circumstances surrounding the complaint militate against according significance to its dismissal. The original complaint to the Virginia Bar was based on the ALJ's finding that DSDB's counsel had "suborned perjury." Letter from Jack D. Smith, General Counsel, to Virginia State Bar (Nov. 5, 1986). However, although the Commission initially called the Bar's attention to the ALJ's finding, the Commission specifically declined to make a recommendation as to what action the Virginia State Bar should take, thereby leaving to the Bar any initiative for pursuing the matter. Letter from Diane S. Killory, General Counsel, to Rhetta M. Daniel, Assistant Bar Counsel (Jan. 28, 1987). Subsequently the Board deleted the "subornation of perjury" finding referred to the Bar. 2 FCC Rcd at 5510  34. Given these circumstances, the fact that the Bar has not elected to pursue action against DSDB's attorney has no relevance to our treatment of the issues before us. III. ORDERING CLAUSE 17. ACCORDINGLY, IT IS ORDERED, That the Joint Petition for Leave to Amend and for Grant of Application, filed November 9, 1995, by Dorothy O. Schulze and Deborah brigham, A General Partnership and SL Communications, Inc. IS DENIED. 18. IT IS FURTHER ORDERED, That the Petition for Partial Reconsideration, filed March 2, 1989, by Dorothy O. Schulze and Deborah Brigham, A General Partnership and related pleadings ARE DENIED, and that the application of Dorothy O. Schulze and Deborah Brigham, A General Partnership (File No. BPCT-850320KG) IS DENIED. 19. IT IS FURTHER ORDERED, That this proceeding IS TERMINATED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary SEPARATE STATEMENT OF CHAIRMAN REED E. HUNDT SL Communications, Inc. (SL) and Dorothy O. Schulze and Deborah Brigham, A General Partnership (DSDB) have proposed a sensible way to resolve this long-running proceeding. The settlement they propose would bring new television service to an underserved community. I seriously doubt that the Commission's decision to deny the settlement will better serve the public interest or that the decision is compelled by Commission precedent. Under Rebecca Radio of Marco, 5 FCC Rcd 937 (1990), the Commission generally does not approve third-party "white knight" settlements. But the rationale of Rebecca Radio would allow an exception in this unusual case. The rationale is that permitting third-party settlements might encourage the filing of frivolous applications. But DSDB has prosecuted its application for years, clearly not for the purpose of profiting from a sale prior to service, and under the proposed settlement DSDB would receive reimbursement only for out-of-pocket expenses. It is true that permitting the third-party settlement here would, in effect, grant a construction permit to DSDB for the purpose of transferring it despite questions about DSDB's qualifications -- something the Commission has not previously permitted in this context. But the Commission has permitted exactly that in analogous contexts. Under Allegan County Broadcasters, 83 FCC 2d 371 (1980), an applicant in a comparative hearing may dismiss its application pursuant to a settlement and be reimbursed despite pending questions as to its qualifications. Thus if SL were an existing applicant rather than a "white knight," Commission case law would permit DSDB to withdraw in favor of SL and be reimbursed, as the parties here propose. Permitting the proposed settlement would have been a better answer to the question this case poses than the one the Commission chooses. But my colleagues have a different view, and because the result is not inconsistent with precedent, I concur.