United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 26, 1997 Decided December 19, 1997
No. 96-1430
Orion Communications Limited,
Appellant
v.
Federal Communications Commission,
Appellee
Biltmore Forest Radio, Inc., et al.,
Intervenors
Appeal of an Order of the
Federal Communications Commission
Stephen C. Leckar argued the cause and filed the briefs for
appellant.
Daniel M. Armstrong, Associate General Counsel, Federal
Communications Commission, argued the cause for appellee,
with whom Gregory M. Christopher, Counsel, was on the
brief.
Donald J. Evans, Timothy K. Brady and Robert A. DePont
were on the brief for intervenors, Biltmore Forest Radio,
Inc., et al.
Before: Edwards, Chief Judge, Ginsburg, and Tatel,
Circuit Judges.
Opinion for the court filed by Circuit Judge Ginsburg.
Ginsburg, Circuit Judge: Orion Communications, Ltd. ap-
peals from an order of the Federal Communications Commis-
sion rescinding Orion's interim authority to operate an FM
station and granting that authority to a consortium of Orion's
competitors whose license applications the Commission had
previously rejected. We hold that the FCC acted arbitrarily
and capriciously and we reverse the Commission's decision.
I. Background
In 1990, after a contested hearing, an Administrative Law
Judge granted the application of Orion Communications, Ltd.
for a license to operate a new FM station in Biltmore Forest,
North Carolina. See National Communications Indust., 5
FCC Rcd 2862 (ALJ 1990). The Federal Communications
Commission thrice confirmed that grant. See National Com-
munications Indust., 6 FCC Rcd 1978 (Review Bd. 1991);
National Communications Indust., 7 FCC Rcd 1703 (1992)
(denying applications for review); Liberty Prod., 7 FCC Rcd
7581 (1992) (denying petition for reconsideration). In April
1993, while rejected applicants had still further appeals pend-
ing before the Commission and this court, the FCC issued to
Orion a construction permit "conditioned on the final outcome
of Docket 88-577," i.e., the license proceeding, noting that
"[a]ny construction pursuant to this permit prior to this
docket becoming final is at the permittee's sole risk." After
discovering that it could save money by leasing a tower
rather than building its own, Orion asked the Commission to
modify its construction permit. In November 1993 the Com-
mission issued a second, modified permit, but only after
extracting from Orion a promise to begin construction imme-
diately.
Meanwhile, in December 1993 this court decided Bechtel v.
FCC, 10 F.3d 875, in which we held that the Commission's use
of the "integration" criterion in comparative hearings was
arbitrary and capricious. Shortly thereafter the Commission
announced that it would "hold[ ] in abeyance the processing of
applications and the adjudication of hearing proceedings ....
while it consider[ed] appropriate action" in light of Bechtel.
Public Notice, FCC Freezes Comparative Proceedings, 9 FCC
Rcd 1055 (Feb. 25, 1994).
In March 1994, acting upon the basis of Bechtel, we re-
versed the orders of the Commission granting Orion's license
application and denying the applications of its competitors,
and remanded the entire matter to the FCC for reconsidera-
tion. See Biltmore Forest Broadcasting FM, Inc. v. FCC,
No. 92-1645 (Mar. 15, 1994). The previously rejected appli-
cants then petitioned the Commission to rescind the construc-
tion permit it had issued to Orion.
Before ruling upon that petition the Commission on June
27, 1994 issued to Orion yet a third construction permit, this
time for a broadcast station in Asheville auxiliary to the
primary FM station in Biltmore Forest. Orion then complet-
ed construction of its station, began to broadcast program
tests, and on August 3, 1994 applied for an operating license.
The next day the Commission acted to "clarify" its earlier
Public Notice; it stated that "[w]here program tests have
already commenced, operations may be continued so as not to
deprive the public of existing service." Public Notice, Modi-
fication of FCC Comparative Proceedings Freeze Policy, 9
FCC Rcd 6689 (Aug. 4, 1994). Because Orion had begun
broadcasting before August 4, the Audio Services Division of
the FCC later denied the request of Orion's competitors to
rescind its construction permit.
The rejected applicants sought reconsideration of their
petition to rescind Orion's permit and also, acting as a
nonprofit consortium under the name Biltmore Forest Radio
Inc. (BFRI), themselves applied for joint interim operating
authority. The Commission reversed the Audio Services
Division and rescinded Orion's construction permit. Accord-
ing to the Commission, although Orion was "technically within
the parameters described by the Public Notice [of August 4]
for continued operation .... the Public Notice did not con-
template circumstances ... where an applicant did not com-
mence [broadcasting program tests] until more than four
months subsequent to the court Order reversing the grant of
that applicant's permit." Orion Communications, Ltd., 10
FCC Rcd 13066 (Nov. 29, 1995). The Commission also
instructed its staff to accept BFRI's application for joint
interim operating authority pending the Commission's final
grant of a license. Orion petitioned for reconsideration. The
Commission denied the petition, explaining that Orion's con-
struction of the station and commencement of broadcasting
was "clearly unreasonable" in light of this court's having
earlier reversed and remanded the Commission's decision
granting Orion's application. See Orion Communications,
Ltd., 11 FCC Rcd 19589 (Oct. 22, 1996). BFRI began broad-
casting six months later, on June 2, 1997.
II. Analysis
We reverse a Commission decision granting or denying a
broadcast license only if that decision is "arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with
law." 5 U.S.C. s 706(2)(A); see DirecTV, Inc. v. FCC, 110
F.3d 816, 826 (D.C. Cir. 1997). The Commission's decisions
in this case clearly fail to meet even this deferential standard.
The Commission recognized that it had the "discretion to
maintain [Orion's] existing service upon ... remand ... in
order to avoid disruption of service to the public." See 11
FCC Rcd 19589 (1996). In nonetheless rescinding Orion's
authority to provide such service, the Commission abused its
discretion and acted arbitrarily and capriciously in the follow-
ing respects: The Commission (1) erroneously concluded that
Orion had been "clearly unreasonable" in proceeding with
construction and broadcast tests after this court, in remand-
ing the case against Orion for reconsideration in the wake of
Bechtel, had vacated the Commission's decision granting Or-
ion's license application; (2) created an unfounded exception
to the general rule announced in its Public Notice of August
4, 1994 that a station already broadcasting could continue to
do so; (3) failed to follow the standards it had set for itself in
47 C.F.R. s 73.3592(b), in that it considered neither the
equities of the situation nor other aspects of the public
interest; and (4) departed from its own recent precedent
without providing a reasoned explanation for so doing.
A. Orion's conduct
The Commission argues that this court's remand of March
15, 1994, by vacating the Commission order granting Orion's
license, served automatically to revoke Orion's construction
permit and that Orion therefore acted unreasonably in con-
tinuing to build its station. Orion argues first that it acted
reasonably in continuing to build its station and alternatively
that the FCC had to give it notice before the revocation of its
license could take effect. We agree with the first point and
so need not resolve the second.
Orion reasonably inferred from the Commission's granting
it a construction permit for an auxiliary station in June
1994--well after our decision remanding the matter of its
primary license for reconsideration after Bechtel--that its
permit to construct the primary station was still valid. An
auxiliary station is by its nature dependent upon there being
a primary station, as the Commission's explanation accompa-
nying its grant of the auxiliary license makes clear. Further,
the grant of the initial construction permit for the primary
station had conferred upon Orion the authority not only to
build the station but also, without obtaining further authoriza-
tion, to begin program tests, as Orion did on July 29, 1994.
See 47 C.F.R. s 73.1620(a)(1).
Orion acted reasonably not only in beginning but also in
continuing to operate because the Public Notice of August 4,
1994 by its terms authorized Orion to do so. Regardless of
whether Orion acted reasonably, however, we do not see how
the Commission could rationally conclude that Orion's conduct
had been "clearly unreasonable." As we have seen, the
Commission's staff denied BFRI's request to rescind Orion's
permit precisely because it understood the Public Notice to
authorize Orion's continued operation of the station. The
Commission is of course at liberty to rule that its staff erred,
but it cannot say in the present circumstance that Orion was
clearly unreasonable to have come to the same arguably
erroneous conclusion.
Nor did Orion's competitors' filing a request for rescission
make Orion's operation of the station unreasonable, as the
Commission now argues; if it had, then every permit-holder
that began to broadcast despite continuing appeals would be
acting unreasonably. The provision of service to the public
would be long delayed if successful applicants were required
to wait until every last appeal was resolved before beginning
to broadcast.
We hold, therefore, that the Commission acted arbitrarily
and capriciously in basing its decision to revoke Orion's
interim operating authority in any part upon Orion's having
acted unreasonably in building and operating its station.
B. Section 73.3592(b)
Section 73.3592(b) states that the Commission "may, if the
public interest will be served thereby," grant interim operat-
ing authority to a coalition of "two or more" competing
applicants. In its decision the Commission took the position
that this section applies to this competitive license proceed-
ing, and upon appeal argues that s 73.3592 actually requires
that it authorize joint interim operation. Orion, in its reply
brief, strenuously resists the notion that the regulation has
any application to the present situation.
By its terms, s 73.3592(b) seems to apply only to those
cases in which a hearing is yet to be held. Contrary to the
Commission's argument, our decision in Consolidated Nine
did not extend the reach of this provision, but merely held
that the Commission could not apply it to one applicant for
interim operating authority while refusing to apply it to
another applicant. See Consolidated Nine, Inc. v. FCC, 403
F.2d 585 (D.C. Cir. 1968).
The Commission's new characterization of s 73.3592, and
its new reading of Consolidated Nine, are also inconsistent
with its own recent decision permitting another broadcaster
to continue operating on an interim basis after the grant of its
license was reversed and remanded by this court pursuant to
Bechtel. See Highlands Broadcasting Co., 9 FCC Rcd 5746,
5747 (1994). In that case the Commission explained that
Consolidated Nine had required the agency to conduct a
further hearing after remand with new applicants and that "in
the absence of those circumstances, precedent supported an
order permitting the grantee to continue its existing ser-
vice.... [N]othing in Consolidated Nine ... would deprive
us of the discretion to allow the existing service to continue if
... termination of the service would not serve the public
interest." Id. at 5747.
In any event, s 73.3592(b) clearly requires the Commission
to consider the public interest in deciding whether to award
joint operating authority. Therefore, even if that section
does apply--a matter that we need not decide today--the
Commission was bound to consider the public interest before
deciding to transfer interim operating authority from Orion to
BFRI.
The Commission has stated that the public interest is not
served by "withdrawing ... existing local service from its
listeners or by having ... existing facilities lie fallow." High-
lands Broadcasting Co., 9 FCC Rcd 5746, 5747 (1994); David
J. Bott, 9 FCC Rcd 6426, 6427 (1994). Yet when the Commis-
sion rescinded Orion's interim operating authority, Orion was
on the air and providing local service. The rescission disrupt-
ed that service, in derogation of the very interest that the
Commission had sought to protect when it permitted all other
stations broadcasting as of August 4 to continue doing so.
BFRI was not ready to provide service when it applied for or
when it received interim operating authority; indeed, it took
six months to become ready, during which time the Commis-
sion looked to Orion to provide service to the public.
The Commission has also found in the past that a signifi-
cant improvement in service must be counted in furtherance
of the public interest. See Western Television Co., FCC 74-
753 (1974); see also Bechtel v. FCC, 10 F.3d 875, 882 (D.C.
Cir. 1993) (integration criteria invalidated for failing to ad-
vance valid goal of "pick[ing] owners who are aware of and
responsive to their communities' special needs"). Here the
ALJ found that Orion's broadcasts would be produced by
Zebulon Lee--who has spent more than 50 years broadcast-
ing in his community--and by Lee's wife and son, who also
have many years of experience working at the family's former
station in Asheville. (The family sold that AM station, as the
Commission required, in the expectation of receiving their
FM license). The ALJ also found that Mrs. Lee planned to
devote her time at the FM station entirely to public affairs
and public service, "ascertain[ing] local needs and problems"
and then "plan[ning] and coordinat[ing] station public service
activities and ... programs responsive to issues of concern in
the station's service area." National Communications In-
dust., 5 FCC Rcd 2862 at 15. Both of these factors contribut-
ed to the ALJ's conclusion that Orion would "clearly ... offer
the best practicable service to the public," id. at 19. None-
theless, the Commission did not explain why--or even wheth-
er--it thought BFRI would better serve the public's interest
in responsive programming than would Orion.
Indeed, we note that three of the four applicants in the
BFRI consortium had been rejected as licensees in one way
or another for lack of integrity: per the ALJ, one "lack[ed]
the requisite character," another had submitted an "abjectly
false" certification, and the third claimed a minority female
owner whose role was merely "window dress[ing]" for the
true owner's "sham" application. 5 FCC Rcd 2862 at 6, 20
n.7, 12.
The Commission has long recognized equitable factors as a
component of the public interest. In RKO General, Inc.,
FCC 82-104 (1982), it permitted a broadcaster whose license
it had revoked to keep operating pending the completion of
appellate review in part because of its felt "responsibility to
ensure a continuation of service to the people of the ... area;
[and upon] considerations of equity and fairness with respect
to the employees of the affected station."
In the current case, however, the "equities" received short
shrift. In its first decision to displace Orion in favor of
BFRI, the Commission stated only "we do not believe the
equities here--where Orion clearly completed construction
months after learning that its authorization was not valid and
where other applicants stand ready to provide service them-
selves--weigh in Orion's favor." 10 FCC Rcd 13066, 13067
(Nov. 29, 1995). Upon reconsideration, the Commission elab-
orated only to the extent of saying that it was "not persuaded
by Orion's contention that equity favors its continued opera-
tion ... given that Orion completed construction after the
court had reversed and a request for rescission had been
filed." 11 FCC Rcd 19589, 19593 (Oct. 22, 1996).
These abbreviated discussions entirely fail to consider any
of the equitable factors that favor Orion. Orion had success-
fully defended its license for four years, readily rebuffing
attacks launched by the rejected applicants. Indeed, Orion's
license would probably have become final long before our
decision in Bechtel unsettled the matter if only the rejected
applicants had not, as the Commission found, filed "repeti-
tious" appeals, Liberty Prod., 8 FCC Rcd 4264 (1993), in
order to "debat[e] matters on which [the Commission] ha[d]
already deliberated and spoken." Liberty Prod., 7 FCC Rcd
7581 (1992). Nor was this court's vacatur of the Commis-
sion's order granting Orion the license prompted by any fault
of Orion's; rather, it was required by our invalidation in
Bechtel of the Commission's integration criterion as arbitrary
and capricious. See Biltmore Forest Broadcasting FM, Inc.
v. FCC, No. 92-1645 (Mar. 15, 1994).
In addition, Orion's investment in building the station in
reasonable reliance upon the Commission's conditional grant
of the construction permit, of a modification in November
1993, and of an auxiliary permit in June 1994, weighs in favor
of permitting Orion to continue operating until the license is
finally granted. The Commission gave no weight to Orion's
reliance interest on the ground that, when it initially sought
the construction permit, Orion had accepted the risk that it
would not get the license. True, but irrelevant. The risk
that Orion accepted was that in the end it would not get the
permanent license to operate. Based upon prior Commission
practice, Orion reasonably expected that it could stay on the
air at least until the Commission made a final decision in the
matter--which it is yet to do. Even now Orion appeals only
the rescission of its interim operating authority; Orion still
bears the risk that it willingly accepted, namely, that it will
not finally be awarded the license.
The Commission's decision would, of course, be entitled to
our deference had it reached a reasoned conclusion that the
public interest factors favoring the award of interim operation
authority to BFRI outweigh the public interest considerations
favoring Orion's continued operation. As indicated above,
however, the Commission's decision was based solely upon its
misapprehension that Orion had behaved unreasonably. The
resulting tilt in the Commission's weighing of the equities and
its woefully partial consideration of the other components of
the public interest make its decision arbitrary and capricious.
C. The Public Notice
The Commission acted arbitrarily in distinguishing Orion's
situation from the situation contemplated in its Public Notice
of August 4, 1994, which permitted then-operating stations to
continue broadcasting. The only difference identified by the
Commission is that Orion, unlike most other stations, did not
begin operating until after the Commission had issued the
freeze order of February 25, 1994, and we had remanded the
challenge to its license in March 1994. As discussed above,
however, the Commission erred in drawing an unfavorable
inference from Orion's actions. Indeed, the Commission can
hardly claim that the initial freeze order put Orion on notice
that it should not begin broadcasting: if the first order had
been clear, then the Commission would not have had to issue
another order for the express purpose of clarifying it.
D. Commission precedent
The decision under review is also inconsistent with the
Commission's previous decisions in Highlands and Bott. In
Highlands the Commission stated that the public interest
would be served by maintaining the status quo after we had,
in light of Bechtel, reversed and remanded the Commission's
licensing decision. See Highlands Broadcasting Co., Inc., 9
FCC Rcd 5746 (1994). Although the Commission now at-
tempts to distinguish Highlands on the ground that the
licensee in that case had begun broadcasting before the
remand, it fails to explain how that difference is relevant
here. Even if the Commission had justified rescinding Or-
ion's license as necessary in order to avoid benefitting the
incumbent operator during the proceedings on remand--as
the Commission now suggests it should have done--that
rationale would seem to apply equally to an incumbent that
had begun operating before the remand.
Nor can the Commission distinguish its decision in Bott
from the decision under review. There as here the initial
licensee did not begin broadcasting program tests until after
the remand. The Commission nonetheless permitted the
licensee to remain on the air until the Commission reached a
final decision. See Bott, 9 FCC Rcd 6426 (1994).
Although the Commission is not necessarily bound by its
prior decisions, particularly in cases where it must weigh the
public interest and the equities in an individualized fashion,
the Commission is bound to provide an explanation when it
departs from a clear precedent. Here the Commission pro-
vided no such explanation of its prior inconsistent decision in
Bott, which compels the conclusion that the Commission acted
arbitrarily and capriciously in this case.* See New Orleans
Channel 20, Inc., v. FCC, 830 F.2d 361, 366 (D.C. Cir. 1987).
__________
* In a footnote to its initial decision rescinding Orion's permit the
Commission did attempt to distinguish Bott on the ground that the
licensee in that case had begun operating before the remand. See
Orion Communications, Ltd., 10 FCC Rcd 13066, 13067 n.6 (1995).
Commission counsel now acknowledges, however, that "[u]pon a
closer review of the facts in Bott" that case "is not in fact distin-
guishable" on this ground. Perhaps that is why upon reconsidera-
tion of its decision regarding Orion the Commission failed even to
mention Bott. See Orion Communications, Ltd., 11 FCC Rcd
19589 (1996).
E. Undue Delay
This matter has been before the Commission for a long
time--ten years since the license applications were filed--and
still the Commission has not finally settled upon a licensee.
In addition to reinstating it as the interim licensee, therefore,
Orion asks us to order the Commission to expedite its final
selection process. That we will not do, in part because the
Congress has recently enacted legislation relevant to the
timing of the Commission's final decision. Section 3002 of the
Balanced Budget Act of 1997, P.L. 105-33 (Aug. 5, 1997)
provides that, in any pending case involving mutually incon-
sistent license applications (such as this one) that has not
been settled by February 1, 1998, the FCC may auction off
the license. The Commission has represented to the court
that it plans to act promptly to implement this legislation;
specifically, the Commission has said it would commence
rulemaking in November 1997 and adopt a Report and Order
in January 1998. We take the Commission at its word.
III. Conclusion
The Commission rescinded Orion's interim operating au-
thority upon the erroneous premise that Orion had acted
unreasonably in completing construction of and starting to
operate its station. The Commission acted without regard to
equitable considerations favoring Orion, other components of
the public interest, or its own recent precedents. We there-
fore remand this matter to the Commission with instructions
to reinstate Orion forthwith as the interim licensee pending
such further proceedings as the Commission may conduct in
order to choose either an interim or a final licensee. The
Order under review is therefore
Reversed.