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FCC Reply - James A. Kay v. FCC & USA (D.C. Cir.)

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Released: August 7, 2014
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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 1 of 11

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

James A. Kay

)

Petitioner,

)

)

v.

) Case No. 06-1076 (and

) consolidated cases)

Federal Communications Commission

)

and United States of America,

)

Respondents. )

REPLY IN SUPPORT OF FCC’S MOTION TO DISMISS

The Federal Communications Commission respectfully submits this reply in

support of its July 14, 2014 motion to dismiss these cases for want of jurisdiction.

As the FCC pointed out in its motion, Petitioners James A. Kay and Charles

D. Guskey have failed to demonstrate standing. While each Petitioner challenges a

series of FCC Orders that restructure the 800 MHz spectrum band, neither

Petitioner holds a license to use 800 MHz spectrum. Thus, they cannot

demonstrate the “injury in fact,” “fairly traceable” to the Orders that is the

“irreducible constitutional minimum” of Article III standing. Lujan v. Defenders

of Wildlife, 504 U.S. 555, 560-61 (1992).

In opposing the FCC’s motion to dismiss, Kay contends that he has standing

by virtue of his financial interest in Third District Enterprises, L.L.C., an FCC

licensee holding several 800 MHz licenses. See Kay Resp. 1-3. Likewise, Guskey

1

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 2 of 11

claims that he has standing by virtue of his financial interest in Preferred

Communications Systems, Inc., another 800 MHz licensee that recently withdrew

from these consolidated cases. See Guskey Resp. 12, 15. As we explain below,

Petitioners’ claims are unavailing. It is well established that a shareholder lacks

standing to enforce the rights belonging to a corporation. See Franchise Tax Bd. of

California v. Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990). Petitioners’

arguments therefore fail to stave off dismissal for want of jurisdiction.

DISCUSSION

I. KAY LACKS STANDING.

When Kay filed his Certificate as to Parties, Rulings, and Related Cases in

Case No. 06-1076, he made the following disclosure pursuant to FRAP 26.1:

James A. Kay Jr. is an individual petitioner in Case No. 06-1076. The only

other parties related to Mr. Kay with an interest in the outcome of the case

are: (a) Third District Enterprises, L.L.C., a limited liability company

organized under the laws of the state of Nevada, and (b) Buddy Corp., a

corporation organized under the laws of the State of California. Each of

these companies is wholly owned and controlled by Mr. Kay.1

After Kay brought suit against the FCC, the Commission revoked all of the

800 MHz licenses directly held by Kay. Those revocations were affirmed through

all administrative and judicial appeals. See James A. Kay, Jr. and Marc Sobel,

1 See Joint Certificate to Parties, Rulings, and Related Cases, D.C. Cir. Nos. 06-

1076, 06-1079, 06-1081, 06-1082, at 4 (filed March 31, 2006) (emphasis added).

Buddy Corp.’s 800 MHz licenses were revoked in the FCC Orders that revoked the

800 MHz licenses directly held by Kay.

2

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 3 of 11

Memorandum Opinion and Order, 25 FCC Rcd 4068 (2010), recon. dismissed,

Report and Order, 25 FCC Rcd 7639 (2010), appeal dismissed, Kay v. FCC, 2010

WL 4340464 (D.C. Cir. Oct. 19, 2010), cert. denied, 131 S. Ct. 2913 (2011).

Because Kay concededly holds no 800 MHz licenses in his individual capacity, see

Kay Resp. 2, he is not injured by the FCC’s efforts to restructure the 800 MHz

band. As a consequence, Kay lacks Article III standing to challenge the FCC

Orders at issue in these consolidated cases.2 See Mot. 8.

In an attempt to cure his loss of standing, Kay now relies on his ownership

interest in Third District Enterprises, L.L.C. (“Third District”) – an FCC licensee

he identified as a “related party” (and not a fellow Petitioner) in his 2006

Corporate Disclosure Statement. See Kay Resp. 1-3. Kay’s stake in Third District

does not provide him standing to invoke the jurisdiction of this Court, however,

because the “longstanding equitable restriction” on shareholder standing “generally

prohibits shareholders from initiating actions to enforce the rights of the

corporation.” Franchise Tax Bd., 493 U.S. at 336; see also Am. Airways Charters,

Inc. v. Regan, 746 F.2d 865, 873 n.14 (D.C. Cir. 1984) (“No shareholder – not

even a sole shareholder – has standing in the usual case to bring suit in his

individual capacity on a claim that belongs to the corporation.”); Labovitz v.

2 Even though Kay had standing when he filed his petition for review, “[a] plaintiff

must maintain standing throughout the course of litigation,” so his subsequent loss

of standing now necessitates dismissal. Foretich v. United States, 351 F.3d 1198,

1210 (D.C. Cir. 2003).

3

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 4 of 11

Washington Times Corp., 172 F.3d 897, 901 n.6 (D.C. Cir. 1999) (“In the

shareholder context, the question is whether the corporation should be entitled to

bring an action, at least in the first instance, without the distraction of stockholders’

suits.”) (internal quotation marks and citation omitted).3 Kay’s response does not

address the well-established prohibition on shareholder standing.

The only exception to this rule is for a “shareholder with a direct, personal

interest in a cause of action,” Franchise Tax Bd., 493 U.S. at 336, who asserts a

claim that is “separate and distinct” from that of the corporation. Gilardi v. U.S.

Dept. of Health and Human Svcs., 733 F.3d 1208, 1216 (D.C. Cir. 2013)

(shareholders of closely held corporation had standing to challenge contraceptive

mandate of Patient Protection and Affordable Care Act because only they could

demonstrate infringement of right to free exercise of religion), cert. granted, j.

vacated on other grounds, Gilardi v. U.S. Dept. of Health and Human Svcs., 134 S.

Ct. 2902 (2014) ; cf. Williams v. Mordkofsky, 901 F.2d 158, 164 (D.C. Cir. 1990)

3 It is well established that the shareholder-standing rule applies equally to

members of limited liability companies who – like shareholders of a more-

traditional corporation – lack standing to assert claims for wrongs done to such

companies. See, e.g., Orgain v. City of Salisbury, 521 F. Supp. 2d 465, 476 n.33

(D. Md. 2007) (“Shareholders (or in the case of an LLC, its members) do not have

standing to sue on the corporation’s behalf.”); U.S. v. Omnicare, Inc., 2013 WL

3819671, *19 (N.D. Ill. 2013) (holding that “[a]ny cause of action and damages …

would belong to [the LLC], rather than any single member of the limited liability

company”); In re Heyl, 502 B.R. 337, 342 (8th Cir. BAP 2013) (even though

principal was a member of creditor, a limited liability company, he could not assert

creditor’s interests on appeal).

4

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 5 of 11

(petitioners lacked standing as shareholders because their losses were derivative of

an injury belonging to the corporation). But Kay has not demonstrated entitlement

to this exception from the general rule. That is because he has failed to allege – let

alone show – any injury that is “separate and distinct” from any injury suffered by

Third District. See Gilardi, 733 F.3d at 1216; Williams, 901 F.2d at 164. Kay’s

Statement of Issues generally alleges that the FCC Orders under review violate

Title III of the Communications of Act of 1934, as amended, 47 U.S.C. § 301 et

seq., and fail to comply with the Administrative Procedure Act, 5 U.S.C. § 553 et

seq. It also expresses intent to present two “specific questions”:

(a) Whether the mandatory relocation of conventional, analog 800 MHz

SMR licensees in order to alleviate interference to public safety

licensees by other non-conventional, digital 800 MHz licensees is

supported by the record below, is contrary to applicable law, and is

arbitrary and capricious.

(b) Whether the plan to award a substantial block of 1.9 GHz spectrum on

an exclusive basis to a single licensee, without affording other

licensees and potential licensees comparable opportunity to obtain

such spectrum rights, and without utilizing the competitive bidding

mechanism to establish the public value to be paid for such spectrum

is supported by the record below, is contrary to applicable law, and is

arbitrary and capricious.4

These purported injuries, by their terms, apply to 800 MHz licensees. As such, any

“injury” Kay may suffer in his capacity as an interest holder must be derivative of

an injury suffered by Third District, the license holder.

4 James A. Kay, Jr.’s Docketing Statement and Statement of Issues to Be Raised,

D.C. Cir. No. 06-1076, at 1-2 (filed March 30, 2006) (emphasis added).

5

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 6 of 11

Kay’s response to the FCC’s motion further underscores that his interests are

derivative of Third District’s. According to Kay, he “continues to hold interest in

several 800 MHz licenses,” which provides him “the requisite standing to seek

judicial review of the rulemaking actions and policy decisions affecting those

authorizations and operations undertaken pursuant to them.” Kay Resp. 1; see also

id. 2-3 (“As beneficial owner of and the person in 100% control of Third District,

the licensee of seventeen 800 MHz authorizations, Petitioner clearly has sufficient

standing to seek judicial review of Commission rulemaking actions and policy

decisions affecting the 800 MHz band.”). Nowhere in his papers does Kay identify

an injury unique to him; instead, Kay’s filings make clear that he is seeking redress

on behalf of Third District, the holder of 800 MHz licenses.

It is thus apparent that Kay is relying on his interest in Third District to

advance claims that he lacks standing to pursue as someone without an 800 MHz

license. The shareholder-standing rule prohibits Kay from using Third District as a

surrogate. Kay “chose to apply for the [800 MHz] license[s] through the corporate

form of” Third District, so Third District is the real party in interest, and the only

entity that could have standing to bring suit against the FCC for modification of its

800 MHz licenses. Williams, 901 F.2d at 164; see also Franchise Tax Bd., 493

U.S. at 336; Am. Airways Charters, 746 F.2d at 873 n.14. Kay therefore lacks

6

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 7 of 11

standing to challenge the FCC Orders at issue, notwithstanding his interest in Third

District.

II. GUSKEY LACKS STANDING.

Guskey also has not demonstrated standing. Like Kay, Guskey is not a

licensee. See Mot. 6-7. Like Kay, Guskey argues for standing based on his

financial interest in another 800 MHz licensee, Preferred Communications

Systems, Inc. (“Preferred”). See Guskey Resp. 12. And like Kay, Guskey fails.

Guskey alleges (without providing any supporting documentation) that he

has made loans to Preferred, which “are convertible to stock … translat[ing] to an

approximately one-third share of [Preferred].” Id. Guskey then contends that he

“ha[s] been directly harmed by virtue of the diminished value of [his] investment

and reduction in any return on [his] investment” resulting from the modification of

Preferred’s 800 MHz licenses. Id.; see also id., 4-11 (alleging various injuries to

Preferred). According to Guskey, this demonstrates that he “ha[s] been personally

harmed/damaged by the impact of the FCC orders,” id., 15, such that his “standing

is not as a third-party.” Id., 12.

Guskey is wrong. Any decrease in the value of Guskey’s investment would

be derivative of an injury suffered by Preferred, the corporation, which holds the

800 MHz licenses modified by the FCC. Thus, under the well-established

shareholder-standing rule discussed above, he lacks standing to challenge the FCC

7

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 8 of 11

Orders at issue. See, e.g, Bixler v. Foster, 596 F.3d 751, 757 (10th Cir. 2010)

(“[p]laintiffs’ allegations … merely assert the minority shareholders suffered a

diminution in value of their corporate shares,” which “is not direct and personal …

but is, rather, an injury to the corporation”); Craig Outdoor Advertising, Inc. v.

Viacom Outdoor, Inc., 528 F.3d 1001, 1024 (8th Cir. 2008) (“A shareholder

generally may not sue on his own behalf … to recover the wrongful diminution in

value of his stock or to recoup his share of money taken from the corporation; such

claims must generally be pursued in a shareholders derivative action.”). Given that

Preferred has withdrawn its own judicial challenge to the FCC’s 800 MHz

rebanding decisions, see Mot. 3-4, and there is no allegation that Preferred is acting

in bad faith, it would be particularly inappropriate to permit Guskey to enforce

rights belonging to the corporation. See Franchise Tax Board, 493 U.S. at 336.

The Court should therefore dismiss Guskey’s cases (Nos. 07-1332 and 07-1367)

for lack of standing.5

5 Guskey suggests in passing that the Court defer any ruling on his standing to the

merits panel assigned to this matter. See Guskey Resp. 16. Such deferral is

unnecessary and inappropriate. There is simply no question, based on the

pleadings, that Guskey and Kay lack standing. But even if those Petitioners had

identified a personal interest in the Orders that differed from the interests of

Preferred and Third District, respectively, neither has actually demonstrated that

interest with facts; and it is clear that Petitioners have an obligation to do so at the

first instance standing is addressed. See Sierra Club v. EPA, 292 F.3d 895, 900

(D.C. Cir. 2002) (“[A] petitioner whose standing is not self-evident should

establish its standing by the submission of its arguments and any affidavits or other

evidence appurtenant thereto at the first appropriate point in the review

8

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 9 of 11

CONCLUSION

The Court should dismiss the Kay case (No. 06-1076) and the Guskey cases

(Nos. 07-1332 and 07-1367) for want of jurisdiction because those petitioners have

not demonstrated standing.

Respectfully submitted,

Jonathan B. Sallet

General Counsel

David M. Gossett

Acting Deputy General Counsel

Richard K. Welch

Deputy Associate General Counsel

/s/ Maureen K. Flood

Maureen K. Flood

Counsel

Federal Communications Commission

Washington, DC 20554

(202) 418-1753

August 4, 2014

proceeding,” which, in cases like this one, “will be in response to a motion to

dismiss for want of standing.”).

9

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 10 of 11

06-1076

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

James A. Kay, Jr., Petitioner,

v.

Federal Communications Commission

and the United States of America, Respondents.

CERTIFICATE OF SERVICE

I, Maureen K. Flood, hereby certify that on August 4, 2014, I electronically

filed the foregoing Reply In Support Of FCC’s Motion To Dismiss with the

Clerk of the Court for the United States Court of Appeals for the D.C.

Circuit by using the CM/ECF system. Participants in the case who are

registered CM/ECF users will be served by the CM/ECF system.

Kevin M. Cookler Robert J. Keller

Lerman Senter, PLLC

Law Offices of Robert J.

2000 K Street, N.W.

Keller, P.C.

Suite 600

P.O. Box 33428 – Farragut

Washington, D.C. 20006 Station

Counsel for: Southern Washington, D.C. 20033

Communications Services, Inc.

Counsel for: James A. Kay, Jr.

Charles D. Guskey

6237 Baymar Lane

Dallas, TX 75252

Counsel for: Charles D.

Guskey

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USCA Case #06-1076 Document #1505957 Filed: 08/04/2014 Page 11 of 11

06-1076

David J. Kaufman Robert B. Nicholson

Rini Coran, PC

U.S. Department of Justice

1140 Nineteenth Street, N.W.

Antitrust Division, Appellate

Suite 600

Section

Washington, D.C. 20036

950 Pennsylvania Ave, N.W.

Counsel for: Mobile Relay

Washington, D.C. 20530

Associates

Counsel for: USA

Christopher J. Wright

Timothy J. Simeone

Harris, Wiltshire & Grannis, LLP

1200 18th Street, N.W.

12th Floor

Washington, D.C. 20036

Counsel for: Sprint Nextel

Corporation

/s/ Maureen K. Flood

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