[00:00:01] Speaker 00:
16-1248, Edward R. Stolls II, DBA, Royce International Broadcasting Company for the appellate, Federal Communications Commission, Mr. Kelly for the appellate, Mr. Shearer for the appellate.

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may it please the court.

[00:00:41] Speaker 02:
My name is Dennis Kelly and I represent Edward R. Stolls II, doing business as Royce International Broadcasting Company.

[00:00:50] Speaker 02:
The FCC form 314 assignment of license application, which is an issue here, was filed without the participation and approval of Mr. Stolls.

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And during the course of time after

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a number of years after the FCC had sat on this case for almost 10 years.

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This court issued its decision on October the 25th, 2005.

[00:01:15] Speaker 02:
I'm sorry, let me take that back.

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The pleading cycle in the application for review before the commission and bank ended on October the 19th, 2005.

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Six days later, this court issued its opinion in kid v. FCC.

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which we rely on in seeking a reversal and a vacation of the orders below.

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And then the commission sat on this case for almost 10 years before issuing decisions.

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It's our position that this constituted arbitrary and capricious agency action in violation of 5 USC 7062.

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What is it in kid?

[00:01:58] Speaker 04:
It's so helpful to you.

[00:02:00] Speaker 02:
Well, what's helpful, Your Honor, is that in Kidd, if I could have just a moment to explain the background, there was owner financing in the sale of a broadcast station.

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And Mr. Kidd defaulted on his obligations.

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The note holder went to a state court in California and got

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court orders where they were able to get the appointment of a receiver.

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An application was filed at the FCC without the participation or consent of Mr. Kidd.

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And the commission granted the application, and then they granted another application for the assignment of the license from the receiver to, I want to say it was the note holder.

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Mr. Kidd came before this court and argued that what happened was that the commission had honored or that the state courts had enforced a reversionary interest.

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And because of the FCC rule, section 73.1150, barring reversionary interests in the sense that you can't lien or hypothecate a broadcast license, this court reversed and remanded.

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The FCC in response dismissed

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the Form 314 and 316 applications and nominally restored the license to Mr. Kidd, although he actually never put the station back on the air again, and a settlement was reached in the case.

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One of the things in the court's decision was that the case was remanded for the FCC to

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further explain its procedures in this area.

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And because of the settlement, the commission never, so far as I know, had never explained their rationale for what they did.

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In our case, there was a court order.

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There was litigation between my client and Intercom Communications, a large publicly traded corporation.

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My client lost the litigation and a court order was entered in Sacramento County, California State Court to order Mr. Stolls to participate in the filing of an FCC form 314 assignment application to transfer or assign the license of the FM station at issue from him to intercom.

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My client did not participate

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He didn't consent, didn't participate, and the application was filed.

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ERRCOM entered his name in the application and filed it.

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Mr. Stolls engaged counsel.

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I was not representing him at the time, engaged other counsel to file a petition to deny.

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And then there was a pleading cycle that led on.

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Our position is that the judgment

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was like, was a security interest.

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Once you get a judgment, you know, the creditor has a security interest.

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And the judge in Sacramento County... That seems to be far broader than anything that happened in Kidd.

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Because I see it, the court didn't at all question the basic notion that for the

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Ownership issues, ownership station, one relied on the state court litigation.

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And if the party didn't like the outcome of that, the party sought review in the state court system.

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And it limited what a state court should do as to essentially directing the application to be made to the FCC for the license application, which is what happened here.

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I really think the same.

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I was familiar with the KTHL case when it was happening because I knew Mr. Kidd.

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To me, when this case came to me in 2015 and putting together the timeline, the Kidd case really shouted out loud at me as you had a California state judge ordering

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an individual to do something in the federal system, and he bundled the license and the assets.

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He could well have ordered, and he did order, the sale of the station assets, the transmitter, intangible assets, things like this, studio equipment.

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But he didn't have the right to order the sale of the license.

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And that's our position in this case, Your Honor, is that... Did this court order the sale of a license or just order the submission of paperwork applying for a transfer to the FCC and then left it to the FCC to make its usual decision under federal law whether to grant it?

[00:07:05] Speaker 02:
Well, as I understand what happened, they reversed... I'm sorry, you reversed the commission and ordered them to explain their rationale.

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And the commission really took no further action other than the party settled after that.

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Sure, I'm asking you about this case.

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All right, nobody, all the state court, in my understanding, you correct me if I'm wrong, is that the state court said, and I'll tell you when, your contract claim, file a transfer application with the FCC and let them decide if they think that transfer should go forward under federal law.

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That's what happened in Kidd.

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The commission could have recognized that there was a reversionary interest and then not granted the applications.

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I have to admit, Kidd

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kid was a new president because it had always been the way in the communications bar we did things.

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If there was a default on a note in the financing of a radio station, we'd go get the station put into receivership and get a court order and then bring it to the commission and file an application.

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This type of ruling

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I don't think ever came up until it was raised by Mr. Kidd.

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And so it appears to me, taking it to its logical progression, a state court judge can't issue an order forcing an applicant such as Mr. Stolls to participate in filing of an FCC Form 314 application.

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And that, to me, is, again, the logical progression in Kidd.

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And that's why we brought this appeal.

[00:08:51] Speaker 01:
Can I ask you, you had raised in your brief and some letters something about the separate position on the KDND license.

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And let me ask my question.

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Yes.

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And my understanding is that as a result of that, Intercom has given up that license.

[00:09:06] Speaker 01:
That is correct.

[00:09:07] Speaker 01:
OK, so does that mean that Intercom only owns four FM licenses now and this case is moot?

[00:09:15] Speaker 02:
Well, as you know, there's still, I submitted this morning through the electronic system the commission's order of Friday the 8th of September.

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And my client has 30 days to appeal that, but it appears from a fair reading of that order that the commission is not going to look at the death of Jennifer Lee Strange in the context of other intercom licenses in Sacramento.

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So what does that mean?

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Do they own more than four FM licenses now in this market?

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I think that's correct.

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And they own an AM station.

[00:09:54] Speaker 01:
Right.

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And so whichever rule is applied, even under your view, which is that the 2002 order should apply, they now satisfy it.

[00:10:05] Speaker 02:
Yeah, it would make it move, Your Honor.

[00:10:09] Speaker 01:
OK.

[00:10:09] Speaker 01:
All right.

[00:10:11] Speaker 01:
Any other questions?

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Would you like to save some time for rebuttal?

[00:10:14] Speaker 02:
Yes, three minutes, please.

[00:10:23] Speaker 05:
Good morning.

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May it please the court, Bill Sherr for the Federal Communications Commission.

[00:10:27] Speaker 01:
Is the case moot?

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Your Honor, if the case may be moot, it seems as though

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Entercom presently would only own four FM and one AM stations, which would comply.

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As I understand it, the issue before the court is whether the FCC correctly determined in 2002, when the application was before it, whether the

[00:11:00] Speaker 05:
whether Intercom's ownership would comply with the local radio rule that was then in effect.

[00:11:06] Speaker 01:
But at this point... But his challenge was that you should have applied the 2002 rule, which would have limited them to four stations.

[00:11:15] Speaker 05:
Correct, Your Honor.

[00:11:16] Speaker 01:
Right.

[00:11:16] Speaker 01:
So even if we were to say, hypothetically, that the FCC got it wrong, the 2002 rule should have applied.

[00:11:22] Speaker 01:
It wouldn't change anything in this case, would it?

[00:11:25] Speaker 05:
No, Your Honor.

[00:11:26] Speaker 05:
I think it best if the court were to were to overturn the FCC's decision and send it back to the FCC to determine whether enter comes ownership would would comply with the local radio ownership.

[00:11:39] Speaker 05:
It would.

[00:11:39] Speaker 01:
It would, in fact, comply with the number of stations that you're asking us to overturn the FCC decision and send it back.

[00:11:45] Speaker 05:
No, I'm agreeing.

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I'm agreeing with you that the cases the cases move.

[00:11:50] Speaker 01:
Okay.

[00:11:51] Speaker 01:
All right.

[00:11:52] Speaker 05:
Just to quickly address Judge Williams' question about Kidd, the difference between this case and Kidd is that Kidd involved a security interest that violated FCC policy.

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And so the court held that, the court didn't call into question the FCC's longstanding practice

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accommodating state court orders were consistent with federal policy.

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What the court held was that where there's a violation of FCC policy the Commission can't simply accommodate a state court order without reconciling the federal policy with the state court order and that was why it remanded.

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Here there's no security interests in the underlying agreement and there's no... Mr. Kelly seems to argue that

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The court order creates a security interest, which I have to say I didn't get.

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I think by definition, Your Honor, security interest is an interest granted by a debtor to secure an obligation rather than an interest created by a court order.

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If a court order created a security interest, that would essentially overturn the FCC's ability to accommodate state court orders as it did in this case.

[00:13:19] Speaker 01:
I think what he's saying, if I understand it, is that what the court did here was force him, as a matter of law, somehow created some legal interest under California law that forced him to surrender this interest by filing a transfer motion with the FCC.

[00:13:40] Speaker 01:
And that, if I'm understanding his argument correctly, is somehow a creation of a legal interest in the license

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forced surrender of it that is equivalent to what happened in Kidd.

[00:13:55] Speaker 05:
Well, as I think Your Honor pointed out, the state court order required that the parties to the state court action submit and license an application with the FCC seeking FCC approval for transfer of the license.

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It didn't order the FCC to make any determination whatsoever.

[00:14:19] Speaker 01:
uh... what would happen if the fc between interaction between the state court judgment of the fcc for whatever reason had said not going to do it not going to do the transfer but that had been perfectly and i just trying to figure out how the two i get that the fcc applied its own public interest determination made its own decision uh... but given that the holder was forced to file this voluntary transfer

[00:14:50] Speaker 05:
The state court order required specific performance of the underlying agreement, but it was contingent on the FCC approving the transfer of the license.

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Typically, as I say, the FCC tries to accommodate state court orders in situations like that.

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And if there isn't a violation of federal policy, that's a bar to that.

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And if there isn't a problem with the qualifications of the SNE, the FCC will grant it.

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If the FCC hadn't granted it, I suppose then the whole case would have been kicked back to the state court to make a determination about

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what to do with the agreement in light of the fact that Intercom couldn't hold the license.

[00:15:37] Speaker 01:
But the court decision here was, the state court decision here was simply that the specific performance required was the filing of the application, not the creation of an independent state law interest in the license.

[00:15:50] Speaker 05:
Right, the state court ordered that the agreement was to transfer the station, including the license, and the state court recognized that transfer of the license required FCC authority and they therefore required as part of the specific performance that application for

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FCC authority be submitted.

[00:16:08] Speaker 03:
There was no reversionary interest in this case, right?

[00:16:12] Speaker 03:
No, Your Honor.

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Whereas in Kidd, there was.

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That's correct, Your Honor.

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I mean, it seems to me that's the striking difference, because otherwise, Kidd becomes a rather bizarre rule.

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As I said, the kid didn't call into question the SEC's long-standing practice, which is firmly grounded in Supreme Court precedent, of accommodating state court orders were consistent with federal policy.

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The problem, the kid, was that the state court order wasn't consistent with federal policy because of this underlying reversionary interest, which violated a specific

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FCC rule and general FCC policy, and the FCC hadn't adequately explained in Kidd how it reconciled those interests.

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That's not the case here.

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There was no security interest whatsoever.

[00:16:55] Speaker 01:
On the grandfather clause, I need some help understanding

[00:17:04] Speaker 01:
where this definition of pending came from, if we were to have to reach the question.

[00:17:10] Speaker 01:
Let me ask you first a question.

[00:17:13] Speaker 01:
Has the FCC ever applied the definition of pending that it has, that you are claiming this order does, in any other situation that you're aware of?

[00:17:26] Speaker 05:
The FCC in the Golden Triangle radio decision that we cite in our brief did conclude that the modified local radio ownership rule did not apply to a previously granted application that remained subject to review.

[00:17:42] Speaker 01:
That was a very different case.

[00:17:44] Speaker 05:
That case did not involve parsing the word pending.

[00:17:49] Speaker 01:
Well, it involved commission

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action itself, the commission itself had acted.

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And as I read this grandfather provision, it says we'll address issues at the time we act, the commission acts on such applications.

[00:18:09] Speaker 01:
But your theory here, so the grandfather clause itself in section 498 says applicability turns on when the commission acts.

[00:18:20] Speaker 01:
But in this case, the commission hadn't yet

[00:18:23] Speaker 05:
I think, Your Honor, when the Commission uses the we in those application processing guidelines that you're, I think, referring to, it's not making a distinction between the staff acting and the full Commission on Bonk acting.

[00:18:41] Speaker 05:
If it was only referring to the full Commission on Bonk,

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Typically applications are processed by the commission.

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They only reach the full commission if the staff grants or denies an application.

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And then there's an application for review that brings it up to the full commission.

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But application processing happens at the staff level.

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And I think the commission generally will use we to refer to its own actions or its staff actions.

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it will distinguish between those two when there needs to be a difference.

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When, for instance, the full commission is deciding an application for review and is disagreeing or departing from a decision reached by its staff.

[00:19:28] Speaker 05:
In answer to your question, I can't cite to you a specific commission precedent where the commission interpreted pending

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in the specific way that it did here is not yet acted on.

[00:19:41] Speaker 05:
The commission in the Peninsula Communications case, which is cited in the record, I think it's a JA-222, rejected the argument that the definition of pending in Rule 1.65, which is a different definition, applied universally.

[00:19:59] Speaker 01:
This Court has... I'll get that, just to clarify my concern here, and that is

[00:20:05] Speaker 01:
The position, which is not remotely clear from the text of this grandfather provision and actually seems to point the other way, is that something is non-final but not pending, even though it's still

[00:20:21] Speaker 01:
de facto pending before the FCC.

[00:20:24] Speaker 01:
And I get that you want to say you can define it any way you want, but if you're defining something in such an unusual way, and that's why I asked if you ever used this definition before, if not if you're departing from precedent, Golden Triangle don't help you, it supports my concern, then someone needs to be a little bit more clear to folks about what's going on.

[00:20:45] Speaker 05:
your honor it's true that the commission didn't define the work ending uh... in that paragraph uh... i think that uh... if first of all the commission's interpretation is entitled to deference unless it's plainly wrong or internally inconsistent i think uh... when you look in the context of the whole biennial review order uh... it's completely consistent uh... with our argument here in particular uh... the grandfathering decision fourteen paragraphs earlier

[00:21:14] Speaker 05:
makes clear that the Commission didn't intend by modifying the ownership rules to require divestitures of existing combinations of stations.

[00:21:23] Speaker 05:
Now, it doesn't use the word pending there, but when it talks about processing applications later, a broader interpretation of the term pending in paragraph 498, where the processing guidelines are, would be inconsistent with the purpose of the grandfathering decision to avoid... Well, unless one doesn't think

[00:21:41] Speaker 01:
One thinks that divestiture interest that should be protected is once there's been final agency action on the transfer.

[00:21:49] Speaker 01:
It's hard to have a lot of interest in something that's non-final and still subject to invalidation by the FCC.

[00:21:54] Speaker 05:
Well, the commission didn't distinguish between final and non-final authorizations in the grandfather.

[00:22:00] Speaker 05:
The concerns the commission expressed about requiring divestitures are concerns that would apply, I think, even to combinations that included stations with non-final authorizations.

[00:22:13] Speaker 05:
It's disruptive.

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to have to divest the station whether or not the authorization is not final.

[00:22:20] Speaker 05:
And I think that it also disrupts expectations.

[00:22:25] Speaker 05:
The commission was concerned about it being unfair to require parties to divest stations that they'd acquired under the existing rules that complied with the existing rules.

[00:22:34] Speaker 05:
And I think even if parties understand that there's a risk of closing a transaction,

[00:22:39] Speaker 05:
that it'll be overturned on review based on a different outcome.

[00:22:44] Speaker 01:
I don't think that that... We don't have to go to any of this if it's all moot.

[00:22:47] Speaker 03:
Yeah, I'm not understanding why we... Why isn't your argument on behalf of the government, they've conceded it's moot.

[00:22:55] Speaker 03:
Mootness is jurisdictional, Your Honor.

[00:22:57] Speaker 03:
Unless you have any questions, I'm going to sit down.

[00:23:00] Speaker 03:
I'm not getting this.

[00:23:02] Speaker 01:
It's my fault.

[00:23:03] Speaker 01:
It's my fault.

[00:23:05] Speaker 03:
No, he answered your questions long after I thought he would have said there is no case.

[00:23:09] Speaker 03:
It's jurisdictional.

[00:23:11] Speaker 03:
It's not a rightness or there's no prudential.

[00:23:16] Speaker 03:
If the case is gone, it's gone.

[00:23:18] Speaker 05:
Your Honor, and with that, I'm going to sit down.

[00:23:23] Speaker 01:
I'm not going to let you just for one, because I have one quick thing.

[00:23:25] Speaker 01:
Is there any reason we need to have the FCC itself determine that there's only four licenses, or if everyone's in agreement?

[00:23:33] Speaker 01:
Is there any factual dispute about that they only hold four licenses?

[00:23:37] Speaker 01:
Because licenses can come and go.

[00:23:38] Speaker 03:
They've conceded it.

[00:23:40] Speaker 03:
You're not disputing it, are you?

[00:23:42] Speaker 03:
We're not disputing it.

[00:23:43] Speaker 03:
Well, then why don't you say there's no dispute?

[00:23:45] Speaker 03:
There appears to be no dispute.

[00:23:46] Speaker 02:
All right.

[00:23:47] Speaker 02:
Thank you.

[00:23:52] Speaker 02:
Your honors, may it please you, I'd like to take one more shot at what happened in the KTHO matter.

[00:24:01] Speaker 02:
Why?

[00:24:03] Speaker 02:
Well, that's not really what I meant.

[00:24:06] Speaker 02:
The mootness has to do with KDND in Sacramento.

[00:24:10] Speaker 02:
The commission formally deleted their facilities on Friday the 8th.

[00:24:15] Speaker 02:
So the KTHO is in South Lake Tahoe, California, and this is the Chris Kidd case.

[00:24:20] Speaker 02:
This is Kidd v. FCC.

[00:24:22] Speaker 02:
And what happened there was when you file an application on a Form 314.

[00:24:28] Speaker 01:
Just to be clear, before you start, so your position is that even if the 2002 order doesn't apply, if we were to somehow hold it and apply, then you still win on your kid argument.

[00:24:43] Speaker 02:
Yes.

[00:24:46] Speaker 02:
Yeah, as an officer of the court, I have to concede that the commission deleted the KDND Sacramento license on last Friday, the 8th of September.

[00:24:55] Speaker 02:
But the argument relative to Kid VFCC goes on.

[00:24:59] Speaker 02:
And back, I guess it was probably in the late 90s when Kid purchased KTHO from Paradise Broadcasting.

[00:25:11] Speaker 02:
If there was owner financing documents.

[00:25:13] Speaker 03:
What is your relief?

[00:25:15] Speaker 03:
If there's nothing in this case in your mind other than a kid, what is the redress that you would get?

[00:25:21] Speaker 02:
If we agree with you.

[00:25:23] Speaker 02:
With the KDND deletion, I have to admit that that argument

[00:25:29] Speaker 02:
is gone.

[00:25:30] Speaker 03:
So then it's irrelevant.

[00:25:32] Speaker 03:
Then there's no more case.

[00:25:33] Speaker 03:
You have to have some redress.

[00:25:36] Speaker 03:
Right.

[00:25:36] Speaker 03:
And I don't understand, even if you're a kid argument, even if we agree with you, what's the redress for you?

[00:25:42] Speaker 02:
That you would order the commission to dismiss the application that was, the FCC form application that was filed on November the 20th, 2002.

[00:25:53] Speaker 02:
which was filed without my client's participation and authorization.

[00:26:00] Speaker 02:
His signature was put on the form by someone else.

[00:26:04] Speaker 02:
That application would be dismissed and we would end up like the kid case where the

[00:26:11] Speaker 01:
So we wouldn't get to the question.

[00:26:12] Speaker 02:
The underlying applications were dismissed and my client would get the license back.

[00:26:15] Speaker 01:
So we wouldn't get to the question of what law to apply because there shouldn't have been a transfer application process in the first place.

[00:26:20] Speaker 02:
Because the whole application should have been dismissed in the first place.

[00:26:24] Speaker 02:
Because for the same principles as Kidd, it violated the reversionary interest.

[00:26:32] Speaker 02:
I wanted to make the point that the judgment that in the sacrament served as a reversionary interest.

[00:26:37] Speaker 02:
It's a security interest.

[00:26:39] Speaker 02:
just as if you went down and recorded the lien, a lien in judgment.

[00:26:44] Speaker 02:
Thank you for listening.

[00:26:45] Speaker 01:
Thank you very much.

[00:26:46] Speaker 01:
The case is submitted.