$//Evansville Skywave (Evansville IN) FM CP MM 88-403 FCC 94- 125//$ $/500.3125 misrepresentation and lack of candor/$ $/500.3170 financial qualifications/$ ///newjob/// $///FCC 94-125 6-1-94///$ FCC 94-125 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In re Application of ) MM Docket No. 88-403 ) EVANSVILLE ) File No. BPH-870430OK SKYWAVE, INC. ) ) For Construction ) Permit for a New FM ) Station on Channel 298A ) at Evansville, Indiana ) MEMORANDUM OPINION AND ORDER Adopted: May 27, 1994 Released: June 7, 1994 By the Commission: Commissioners Ness and Chong not participating. 1. This memorandum opinion and order denies review of a decision of the Review Board denying the application of Evansville Skywave, Inc. (Skywave) for a new FM radio station in Evansville, Indiana. Evansville Skywave, Inc., 8 FCC Rcd 7009 (Rev. Bd. 1993). I. BACKGROUND 2. Skywave is the only applicant remaining in what was originally a seven-party comparative proceeding. Skywave has a single voting stockholder, Sondra Matthews (25 percent equity interest), and a single nonvoting stockholder, Skywave Communications Corporation (SCC) (75 percent equity interest). SCC's president, Lee R. Perkinson played a key role in organizing Skywave. 3. On February 28, 1992, the Commission reversed a Board decision that had disqualified Skywave for allegedly misrepresenting the validity of its organization as a two-tiered corporation. Evansville Skywave, Inc., 7 FCC Rcd 1699 (1992). The Commission did not reach the question of whether, as the Board found, Perkinson rather than Matthews actually controlled Skywave, since the record did not indicate that Skywave had misrepresented or concealed the nature of the two principals' participation. Accordingly, the Commission remanded this proceeding to consider previously mooted questions regarding Skywave's financial qualifications. II. PROCEEDINGS ON REMAND 4. After further hearings, Administrative Law Judge Edward J. Kuhlmann concluded that Skywave failed to demonstrate that it had reasonable assurance of the funds needed to construct and operate the Evansville facility. Evansville Skywave, Inc., 8 FCC Rcd 26 (I.D. 1992). Skywave relied on an April 27, 1987 letter from Bank One, Indianapolis, indicating the bank's willingness to lend Skywave up to $400,000 (increased to $450,000 by a subsequent letter). The ALJ found that this letter was inadequate to establish Skywave's financial qualifications. 5. According to the ALJ, the letter had resulted from an agreement between Perkinson and Bank One vice president, Anthony P. Schlichte, made before Perkinson had even decided in which communities to file applications. (SCC-affiliated applicants eventually filed in ten communities). 8 FCC Rcd at 30  33. The ALJ found that Schlichte provided the same form letter for each SCC applicant without making any assessment of the viability or the creditworthiness of the borrower. Id. In particular, the ALJ found that the record did not demonstrate that Matthews, who supposedly arranged for the Skywave letter, sent any relevant financial data to Bank One about herself or about Skywave's proposal. Id. at 30  27. In this regard, the ALJ rejected Matthew's testimony as unreliable and lacking in candor. Id. at 29  24-25. 6. The Board affirmed the conclusion that Skywave was not financially qualified (8 FCC Rcd at 7011-12 n.6) and concluded that Skywave should be disqualified for misrepresentation and lack of candor. Id. at 7018-19  17-18. The Board found that: (1) Matthews falsely testified that she submitted a personal financial statement to Schlichte before he issued the 1987 letter (Id. at 7012-15  8-10); and (2) Matthews testified falsely about a "sample letter" that she supposedly sent to Schlichte. Id. at 7015-18  11-16. III. FINANCIAL QUALIFICATIONS 7. In its application for review, Skywave stresses that Schlichte issued the letter based on his familiarity with the substantial financial resources of individual SCC stockholders. In this regard, Skyway observes that Bank One had previously made and serviced a loan to Midwest Mobilephone, which was owned by several of the same stockholders as SCC. Skywave claims that the letter was an arm's length transaction in compliance with the bank's ordinary credit policies. 8. We agree with the ALJ and the Board that the 1987 letter did not provide reasonable assurance of a loan. We find that the letter does not reflect any individualized consideration of Skywave's proposal by the bank. In this regard, the record does not support Perkinson's testimony that, with respect to the SCC proposals: "Mr. Schlichte did [not] give me a carte blanche; I always understood that the bank would examine each situation to be sure it was willing to make a loan." Skywave Exh. 3 at 8. Similarly, the record does not support Matthews' testimony that she "arranged for" the loan. Tr. 215. 9. Schlichte's own testimony indicates to the contrary that he did not specifically examine the Evansville proposal and that Matthews did not "arrange for" the loan. Schlichte explained that he issued the letter based primarily on his familiarity with SCC's principals and not on an assessment of the proposed Evansville facility or on the financial position of the local stockholder (i.e., Matthews). Tr. 292-93; Skywave Exh. 4 at 4  8. Instead, Schlichte reserved the right to review detailed financial information regarding the project and its principals at the time a formal loan application would be made. Skywave Exh. 4 at 4  8. He stated that the letter indicated that a loan would likely be made only "upon favorable review of financial information." Tr. 292. Schlichte admitted that he was not even aware of how the Evansville facility would be owned after it went on the air. Tr. 289. Schlichte testified that the letters he issued to the SCC applicants were based on a single "prototype letter." Skywave Exh. 4 at 3  6. Thus, as the ALJ found, Schlichte disclosed that the Evansville letter reflected an agreement between Perkinson and Schlichte made before Schlichte even heard of the Evansville applicant and not on any particularized consideration of the Evansville proposal. 10. In particular, the record provides no basis to conclude that the letter reflected any meaningful contact between Matthews and Schlichte. Indeed, Schlichte could not specifically recall being approached by Matthews (although he stated that it was customary for the local SCC principal to contact him). Skywave Exh. 4 at 3-4  7. Matthews' testimony concerning the amount of the loan provides a telling example of the nature of her participation. Matthews estimated that the cost of construction and initial operation of the station would be $250,000. Skywave Exh. 2 at 1. The letter specifies a loan of $400,000, an amount 60 percent greater. Skywave Exh. 2, Att. C. Matthews gave no coherent account of how the $400,000 amount of the loan came to be specified in the letter. She initially testified that she asked Schlichte for $300,000 and could not explain why the letter specified $400,000. Tr. 332, 346. Matthews then testified that she could not recall specifying the amount of the loan to Schlichte either orally or in a "sample" loan letter. Tr. 350. Subsequently, she stated that she recalled inscribing the $300,000 figure by hand in a sample letter given to her by Perkinson and that she probably increased the figure to $400,000 when she retyped the letter and sent it to Schlichte. Tr. 354. (At that point she testified that she could not recall her previous testimony that she did not know whether she filled in the amount.) Still later, however, she indicated that the letter she sent to Schlichte was a composite and not based on a single sample and that she could not recall when she increased the figure from $300,000 to $400,000. Tr. 357. 11. Matthews' testimony about the reason for the $150,000 cushion over the amount of the estimated costs is also unconvincing. Matthews explained that the $400,000 was intended to cover prosecution expenses as well as construction and operation costs, but she admitted that she did not discuss this with Schlichte. Tr. 348-49. The letter refers only to construction and operation costs. Skywave Exh. 2, Att. C. Matthews later testified that the $400,000 figure was chosen in part because "banks don't always give you what you ask for." Tr. 358. Yet Matthews reports no discussions with the bank before it issued the letter specifying that amount and stated that she was nonetheless not surprised that the letter specified $400,000. Tr. 359. We agree with the ALJ that Matthews' testimony with regard to these matters is so contradictory and transparently result-oriented that it provides no basis to find that any meaningful contact between Matthews and Schlichte occurred. 12. Another point also illustrates the lack of meaningful contact. Schlichte testified that the bank would likely require both the SCC principals and Matthews to guarantee any loan. Tr. 285-86, 289-90. The bank letter, however, made no mention of any guarantees. Skywave Exh. 2, Att. C. Moreover, Matthews sent no personal financial statement to Schlichte. Tr. 341. Perkinson also confirmed that he and other SCC stockholders submitted no financial information in connection with the Skywave letter, although he believed that the bank had information in connection with the earlier Midwest Mobilephone loan. Tr. 260-61; Skywave Exh. 6 at 1-3. 13. Indeed, the ALJ found that the record did not support Matthews' claim that she sent any information to Schlichte before he issued the letter. The ALJ's finding is supported by his adverse credibility findings about Matthews' testimony, which are entitled to great weight. See WHW Enterprises, Inc. v. FCC, 753 F.2d 1132, 1141 (D.C. Cir. 1985). Moreover, as noted above, Schlichte had no record of receiving any information from Skywave and could not recall receiving any, and neither Matthews nor Skywave's attorneys could produce a copy of the submission supposedly made to the bank. 14. We conclude that Skywave's bank letter did not meet the Commission's established criteria for demonstrating reasonable assurance as noted in Scioto Broadcasters, 5 FCC Rcd 5158, 5160 12 (Rev. Bd. 1990). Skywave, the prospective borrower (unlike its passive investors), did not have a long and established relationship with the bank. Nor did Skywave provide the bank with the kind of information on which the bank could decide that a loan would be forthcoming. In the absence of such a showing, the letter is insufficient to establish Skywave's financial qualifications, and this circumstance, standing alone, warrants the denial of Skywave's application. IV. MISREPRESENTATION AND LACK OF CANDOR 15. As noted above, the Board's finding that Matthews committed disqualifying misrepresentation and lack of candor concerned the deficiencies that the ALJ found in her testimony about the information she supposedly submitted to Schlichte. The ALJ found that her testimony that she sent Schlichte a personal financial statement (note 5 supra), a matter obviously relevant to the question of whether the bank had a basis on which to make a bona fide loan commitment, was deliberately false. This finding was deemed particularly compelling due to the fact that Matthews' specific claim that she submitted a financial statement was a repetition and clarification of previous answers in which she stated that she had provided financial information about herself to Schlichte before the bank's issuance of the 1987 loan letter. 8 FCC Rcd at 29  23. Tr. 216-17. He also faulted her inconsistent testimony concerning the "sample letter" (note 3 supra), which Skywave had submitted as part of an exhibit intended to "address the questions raised by the Review Board about what information [Matthews] provided to Bank One prior to the issuance by Mr. Schlichte of a financing letter in April, 1987." Skywave Exh. 5 at 1. He found that the testimony was unreliable and lacking in candor and that the inconsistencies in her testimony reflected an attempt to testify to whatever would best serve her interests. Id. at 29  24-25. The Board concluded that such a "pattern of lack of candor, evasiveness, and outright misrepresentation" constituted disqualifying misconduct. 8 FCC Rcd at 7018 17. In this regard, the Board held that the findings of the ALJ, who observed the witnesses, were entitled to great weight. 16. Skywave challenges the Board's finding that Matthews made disqualifying misrepresentations. According to Skywave, the statements criticized by the Board merely reflect Matthews' confusion over trivial matters and not any intent to deceive. 17. Skywave attributes the false impression left by Matthews' testimony, that she had submitted a personal financial statement to Schlichte before he issued the 1987 letter, as a result of an innocent misunderstanding. Skywave explains that, during a recess in the hearing, Matthews, in discussing the matter with her attorney, realized that she had mistakenly interpreted the question as asking whether she had submitted a financial statement at any time, not whether she had submitted one prior to the original letter. See Tr. 343-44; Skywave Exh. 5 at 2-5. Skywave complains that the ALJ did not recognize that Matthews attempted to correct her testimony immediately after the recess. See Tr. 277, 344. Skywave observes that earlier, in a deposition, Matthews acknowledged that she sent no personal financial statement to Schlichte. Bureau Exh. 1 at 106, 110. (However, as discussed in note 7, supra, we find that the ALJ's point is supported by the record). 18. Skywave maintains that the details of how Matthews prepared the sample letter she sent to Schlichte are immaterial and that Matthews had no motive to deceive in this matter. Skywave contends that Matthews simply forgot the precise sequence of events until her memory was jogged by cross-examination. 19. The Mass Media Bureau responds that Matthews' testimony was blatantly false and deceptive and that it is disqualifying whether or not it involved a material subject. 20. We agree with the Board that this case is governed by Richardson Broadcast Group, 7 FCC Rcd 1583 (1992). There we concluded that an applicant was disqualified where an ALJ found that the applicant's testimony before him was pervasively lacking in candor, despite the fact that the particular discrepancies and evasions taken individually might not have been disqualifying. 7 FCC Rcd at 1585  9. The ALJ here made a determination that Matthews' testimony pervasively lacked candor, was utterly unreliable, and that it was result-oriented and not the product of confusion or innocent error. As the discussion above indicates, that finding is entitled to great weight and is consistent with the record as a whole. 21. We reject Skywave's reliance on Garrett, Andrews & Letizia, Inc., 49 RR 2d 1001, 1007  18 (Rev. Bd. 1981), and Fox River Broadcasting, Inc., 50 RR 2d 1321, 1324-25  6 (Rev. Bd. 1982), modified, 53 RR 2d 44 (1983), for the proposition that misrepresentation cannot be found in the absence of material misstatement, intent to deceive, or logical reason to deceive. Here the ALJ specifically found that Matthews' misstatements were deliberately deceptive. Moreover, while the issue of what information Matthews' submitted to Schlichte is of relatively minor importance, it is nonetheless material to Skywave's attempts to demonstrate that Schlichte had a reasonable basis on which to issue the letter. The pervasive nature of the lack of candor found demonstrates that Matthews cannot be relied on as a Commission licensee. Thus, the fact that Matthews attempted to correct part of her testimony and that the specific evasions found involved matters of relatively little significance do not provide mitigating circumstances warranting any modification of the result in this case. V. ORDERS 22. ACCORDINGLY, IT IS ORDERED, That the Application for Review, filed October 4, 1993, by Evansville Skywave, Inc. IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary