Parties to TEGNA Deal Seek Full Commission Review of Hearing Designation Order – Looking at the Process They are Trying to Avoid 

Last week, broadcasters and broadcast journalists were abuzz with discussions of the FCC’s Media Bureau issuing a hearing designation order referring to an Administrative Law Judge questions about the proposed acquisition of the TEGNA broadcast stations by Standard General Broadcasting.  This week brings news that the parties have filed a Motion asking that the Judge certify this designation to the FCC Commissioners to determine whether the case really should have been designated for hearing.  The request that the case be referred to the Commissioners notes that the designation would have the effect of terminating the transaction, as the contract provides the parties only until May to close, and the buyer cannot get the agreement extended.  With so many questions about the TEGNA deal and its designation for hearing, we thought that we would review the hearing designation process and look at the inherent delays in the process which led to the parties’ contention that the designation, if not reviewed by the Commission, will effectively kill the deal.  In a subsequent article, we will look at some of the substantive issues raised by the hearing designation order.

Five years ago, we wrote about the hearing designation process in connection with the last major case where a proposed broadcast transaction was designated for hearing, i.e., Sinclair Broadcast Group’s proposed acquisition of the television stations owned by Tribune Media.  The TEGNA case differs from the Sinclair case in one significant manner, namely that the hearing designation order in the TEGNA case was issued by the Chief of the FCC’s Media Bureau, not by the Commissioners themselves.  In the Sinclair case, the Commissioners issued the hearing designation order, meaning there was no opportunity to ask for the review now being sought by the parties to the TEGNA deal.  When a designation order is issued by a Bureau, the party whose application was designated for hearing can, as in the TEGNA case, ask the presiding Administrative Law Judge to certify the case to the Commissioners before starting the hearing process, if there are questions of law that suggest that the case should not have been set for hearing.  While the Judge can decide to seek the guidance of the full Commission through this kind of certification, the full Commission need not take up the case even if the Judge decides to certify it to them.  Instead, the Commissioners can decide that the hearing should move forward, and that the legal issues can be considered later after the full hearing has taken place.  While that is the procedure set out in the FCC’s rules,  the TEGNA parties argue that were the Judge to certify the case and the Commission did take action, then they intend to directly appeal the matter to the Courts for review (which is normally not allowed until a decision is reached by the ALJ) because the designation for hearing by itself, issued after the application was pending for a year, equates to a the denial of the application.  What in the process for a case once designated for hearing that leads to that conclusion?  Let’s look at the process of setting a case for hearing.

Several decades ago, the process of designating an application for hearing was a common occurrence, often used by the FCC to decide between competing applicants for new broadcast (and in some cases non-broadcast) licenses, or in connection with decisions as  to grant the license renewal of broadcast stations where substantive petitions or competing applications were filed against such applications, or to deal with enforcement issues when there were questions about the facts of a particular case.  The FCC had a large staff of Administrative Law Judges who heard these cases, and they were usually quite busy.  But as the comparative hearing process for new stations morphed into the current process of awarding new stations through auctions, and after the FCC’s rules were changed to eliminate competing applicants to renewal applications, hearings dwindled.  As a result, the staff of ALJs at the FCC shrunk to just one.  Administrative hearings at the FCC are now rare, so the process that an FCC hearing would follow may not be widely understood. 

Congress established, in Sections 309 and 310(d) of the Communications Act, the way in which the FCC must process applications.  In cases involving applications for new stations or for the purchase and sale of stations, applications are filed providing information required by the FCC and such supplemental information as the FCC may request.  Interested parties routinely have 30 days in which to petitions objecting to applications, and those petitions must include detailed allegations supported by facts either in the public record or otherwise supported by statements from those with personal knowledge, arguing why an application should not be granted.  Applicants then are afforded the opportunity to respond to any allegations raised.  In most cases, the FCC will attempt to resolve any disputes, or any questions that it has on its own, on the basis of the written materials presented in the application, the petitions, and in response to any FCC supplemental request for information. 

In evaluating whether to approve an application to acquire a station, the FCC, under Section 310(d) of the Communications Act, must determine whether the public interest will be served by a grant of the application.  However, that same section makes clear that the FCC “may not consider whether the public interest, convenience, and necessity might be served by the transfer, assignment, or disposal of the permit or license to a person other than the proposed transferee or assignee.”  Thus, the FCC must evaluate the applicant before it to decide if they have the basic qualifications to acquire the station, and the FCC cannot deny the application based on a belief that there might be some better qualified applicant to acquire the station.  This obviously provides some comfort to the deal marketplace, as it provides assurance that, the FCC will grant the application if the buyer is qualified, even if there was some unsuccessful bidder who might believe that they would better be able to run the station in question.  In the TEGNA case, the parties argue that this policy has been violated because no disqualifying issue about the potential buyer has been raised.  We will look at the issues raised in a subsequent article.

At the same time, Section 309(e) makes clear that, if there is a “substantial and material question of fact” or if the Commission is otherwise not able to determine that an application meets the requirements of the rules, it can formally designate the application for hearing.  More specifically, where there are questions of fact raised about the qualifications of the prospective applicant, and those factual issues cannot be resolved based on the pleadings filed in connection with the application and any objection, the FCC can issue what is called a Hearing Designation Order to send the application to an Administrative Law judge to hold an evidentiary hearing to try to resolve the factual issues.  That Order recites the facts of the case and discusses the problems that the FCC has with the application.  It sets out a specific list of “issues” that the Judge is to consider in the hearing process.  In its request that the full Commission review the designation order, the TEGNA parties have argued that there really is no material question of fact, as every document related to the transaction has been produced to the FCC, and as the parties have made promises that they believe resolve all issues that the FCC raises. 

But if a hearing goes forward, the process by which the ALJ conducts the hearing is set out in the Communications Act and by FCC rules.  Usually, the FCC will have its own attorneys participate in the case, conducting discovery (e.g., document production, depositions, interrogatories) as in any other court case, trying to get to the bottom of the specific issues presented.  Other “parties in interest” in the case, usually including those who filed formal petitions to deny, will also have an opportunity to participate as parties.  The FCC process allows parties to file requests to “enlarge the issues,” urging consideration of issues beyond those designated by the FCC.  As in the petition to deny process, specific facts to support any additional issues must be provided, and the judge needs to conclude that the request raises a substantial matter that merits the addition of new issues besides those already designated by the FCC.

Also, before any actual trial-type hearing, parties can also ask for summary decision to resolve some or all of the issues presented based on the facts in the record or produced through discovery.  If the issues are not resolved in that manner, the ALJ will routinely conduct an actual trial-type hearing, with the Judge in a robe, witnesses being called to testify under oath as recorded by a court reporter, and cross-examination by attorneys for the other side.  After the hearing, the parties typically file “findings and conclusions” – legal briefs summarizing the facts brought out at hearing and citing the legal precedent that should be applied to those facts. 

In most cases that are designated for hearing, the Judge, after considering the facts, will evaluate the record of the hearing and the written arguments before rendering a decision in writing.  Usually, the Judge’s decision can be appealed to the full Commission.  But the TEGNA case does not follow the usual model.  Most of the time, the Hearing Designation Order will include a final “issue” that is designated for hearing – one asking the Judge to determine, based on her findings of fact, whether the application that has been designated should be granted.  In the TEGNA case, there is no such ultimate issue for the Judge to decide.  Instead, the Order simply asks the Judge to make the findings of fact and return the case to the Media Bureau to decide what additional steps should be taken based on the Judge’s findings. 

As in any civil litigation, these cases can be lengthy, with discovery and other procedural wrangling taking months to play out.  Those delays are one of the reasons that the FCC has tried wherever possible to avoid actual hearings – even in some cases resorting to “paper hearings” to try to adduce the facts necessary to deal with an application (see, for instance our articles here and here about cases where the FCC ordered a paper hearing as to whether stations that had been off the air for substantial periods of time during a license term were entitled to a renewal of license).  It is common for contracts for the acquisition of broadcast stations to contain a right to terminate the agreement by either party if there is a designation for hearing, given the delays and costs inherent in such a hearing. 

The process is a relatively straightforward one, but one that is time-consuming, leading to the TEGNA parties’ contention that the designation order effectively kills the deal.  We will see how that process plays out if the Judge grants the request to refer the case for consideration by the full Commission, or if the parties seek other extraordinary relief in this most unusual case.

Courtesy Broadcast Law Blog