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Before the
Federal Communications Commission
Washington, D.C. 20554
)
In the Matter of
)
SM Radio, Inc. File No. EB-03-DL-228
)
Facility ID No. 60694 NAL/Acct. No. 200432500002
)
Licensee of KUOL(AM) FRN: 0010045532
)
San Marcos, Texas
)
ORDER ON REVIEW
Adopted: February 6, 2008 Released: February 8, 2008
By the Commission:
I. INTRODUCTION
1. By this Order on Review ("Order"), we deny the Application for
Review, filed by SM Radio, Inc. ("SM Radio"), licensee of AM Radio
Station KUOL, San Marcos, Texas, of an Enforcement Bureau ("Bureau")
Memorandum Opinion and Order ("Bureau Order") released December 28,
2004. In affirming its finding that SM Radio failed to maintain a main
studio presence within its community of license, in willful and
repeated violation of Section 73.1125 of the Commission's Rules
("Rules"), the Bureau Order granted and denied in part SM Radio's
petition for reconsideration of a Bureau Forfeiture Order, and
reduced the underlying forfeiture amount from $7,000 to $5,600. SM
Radio has challenged the Bureau Order.
II. BACKGROUND
2. On October 28, 2003, an agent from the Commission's Dallas, Texas
Office ("Dallas Office") attempted to inspect the main studio of
Station KUOL. A building located at the station's tower site appeared
to be the station's studio; however, the building was locked,
unattended, and appeared to be abandoned. That same day, the agent
spoke with SM Radio's technical representative, who advised the agent
that the building at the tower site was KUOL's main studio. SM Radio's
technical representative informed the agent that the studio was
staffed only by an unpaid station volunteer from a local church who
was available to travel to the studio if requested.
3. On December 19, 2003, the Dallas Office issued a Notice of Apparent
Liability for Forfeiture ("NAL") to SM Radio in the amount of seven
thousand dollars ($7,000) for the apparent main studio violation. On
April 5, 2004, believing incorrectly that SM Radio had not filed a
response to the NAL, the Bureau issued a Forfeiture Order to SM Radio
upholding the NAL. SM Radio filed a petition for reconsideration of
the Forfeiture Order, in which it did not contest the violations;
instead, SM Radio sought reconsideration of the decision, citing its
inability to pay and its history of compliance with the Commission's
Rules.
4. The Bureau Order upheld the violation of Section 73.1125 of the Rules
and the forfeiture, but reduced the forfeiture amount from $7,000 to
$5,600 on the basis of SM Radio's history of compliance. As noted
below, however, the Bureau Order did not reduce the forfeiture for
inability to pay, given that "there are several affiliated licensee
entities whose gross revenues are also relevant to the issue of
whether SM Radio can pay the proposed forfeiture because the entities
share common ownership with SM Radio." Commission records at the time
the Bureau Order was issued reflect that Paulino Bernal was the 100%
owner of SM Radio. Commission records further reflect that Mr. Bernal
was the 100% owner of other companies licensed to operate other radio
stations, specifically, La Radio Cristiana Network, Inc., Paulino
Bernal Evangelism, and Consolidated Radio, Inc.
5. In its Application for Review, SM Radio contends that the Bureau's
finding that a licensee must submit financial data from "affiliated
entities" or "affiliated licensees" is not consistent with precedent.
SM Radio asserts that the term "violator" in Section 503(b) of the
Communications Act of 1934, as amended ("Act"), is, by implication,
limited to the holder of a Commission authorization and that
Commission precedent has used the term "violator" as a synonym for
"licensee." Because it was the licensee, SM Radio, and not any
affiliated person or entity, that was found to have violated the main
studio rule, SM Radio argues that only its financial condition may be
considered in assessing its inability to pay claim. SM Radio argues
that it is a novel proposition that all "affiliated entities" may be
combined with the actual "violator," and that the Bureau exceeded its
delegated authority in stating this proposition. SM Radio further
argues that consideration of these other affiliated entities would be
tantamount to piercing the corporate veil. SM Radio asserts that the
Commission should not pierce the corporate veil in this case,
particularly because the licensee is part of a religious ministry
conducted by Mr. Bernal.
6. Finally, SM Radio contends that any requirement that its financial
documentation include "donations to Pastor Bernal's ministry" would
place an unconstitutional burden on the practice of religion. In this
connection, SM Radio states that the programming on its station, and
that of the other stations owned by Mr. Bernal, is primarily religious
in nature, and that listeners' monetary donations "help defray the
costs of station operation and expand the reach of the Bernal
ministry."
III. discussion
7. The proposed forfeiture amount in this case was assessed in accordance
with Section 503(b) of the Act, Section 1.80 of the Rules, and the
Commission's Forfeiture Policy Statement. In examining SM Radio's
Application for Review, Section 503(b) of the Act requires that we
"take into account the nature, circumstances, extent and gravity of
the violation and, with respect to the violator, the degree of
culpability, any history of prior offenses, ability to pay, and such
other matters as justice may require."
8. As noted above, SM Radio does not deny that it violated Commission
rules. Instead, it challenges the Bureau's need for financial
information concerning its owner and affiliated companies in order to
assess SM Radio's argument that the forfeiture should be reduced
because of SM Radio's inability to pay. We conclude that the Bureau
properly refused to reduce the forfeiture because the evidence
suggests that SM Radio has not provided complete information on the
totality of financial resources available to it. We also conclude that
the status of SM Radio's owner as a religious broadcaster does not
exempt him or his affiliated companies from providing complete
information concerning all of the financial support he or his
companies provide SM Radio in order to substantiate its inability to
pay claim.
A. SM Radio Is Not Entitled To A Reduction Of The Forfeiture Based On
Its Professed Inability To Pay
9. SM Radio argues that Section 503 of the Act and Commission rules and
precedent limit consideration of a licensee's ability to pay to the
revenues of that licensee. According to SM Radio, because it is the
violator here, only its financial condition, and not that of its owner
or affiliated entities, should be considered in assessing its ability
to pay the forfeiture. SM Radio further argues that the forfeiture
assessed in this case is excessive in light of SM Radio's revenues and
should be reduced or remitted. For the reasons discussed below, we
reject SM Radio's inability to pay claim.
10. In order to make a successful claim of inability to pay, a licensee
must provide adequate supporting financial documentation. Contrary to
SM Radio's claims, we have consistently interpreted Section 503 and
our rules as requiring consideration of all financial sources
available to that licensee, not just the revenue of that specific
licensee. As we stated recently:
[W]hen a violator asserts an inability to pay a forfeiture amount relative
to its financial situation, the Commission has the authority to look at
the totality of the violator's particular financial circumstances in
evaluating that claim. In that regard, the Commission has looked to
potential sources of income available to a violator when considering a
violator's ability to pay a forfeiture.
Thus, if a licensee argues an inability to pay, it must provide evidence
that it cannot pay the forfeiture as assessed, despite all of the
financial resources available to it. Consequently, in assessing a
violator's ability to pay, the Commission has reviewed not only the
financial condition of the individual station at issue or the portion of
its operations relevant to the underlying violation, but also in
appropriate circumstances the revenues of affiliated operations of that
licensee and even parent companies.
11. In support of its inability to pay claim, SM Radio provided a
statement from its accountants showing the licensee's revenues and
expenses at the time of the violation. SM Radio has indicated,
however, that it has received significant financial support from
outside entities. For example, SM Radio has admitted that its
"programmer" defrays the station's operating expenses, such as
electric power. Moreover, in describing how it planned to come into
compliance with our main studio rule, SM Radio stated it renovated
Station KUOL's main studio and secured the services of two additional
individuals to staff the studio (one of whom will reside at the
studio). These expenses are not reflected in the financial information
provided by SM Radio, nor has SM Radio identified the sources of
funding for these expenses and remedial actions. Nevertheless, SM
Radio has refused to provide financial information that would give a
complete picture of the resources available to it, instead basing its
inability to pay claim solely on SM Radio's financial statements.
12. SM Radio's position is squarely contradicted by our precedent. In
Radio X, for example, the licensee cited its limited revenues in
support of its inability to pay claim, yet its financial statements
indicated that the licensee had received substantial financial support
from its parent company. Specifically, Radio X submitted financial
statements indicating that its parent company made "all payments" on
the licensee's behalf over a two-year period, and was obligated on
debt incurred to finance Radio X's operations. Notwithstanding the
relevance of this information, Radio X refused to submit its parent
company's financial documents, arguing that the Commission should
examine only the violating licensee's finances. We rejected Radio X's
claim, concluding that "we cannot fully evaluate Radio X's ability to
pay the forfeiture, including all its potential sources of income,
without evaluating the financial condition of its parent company."
13. Another case contradicting SM Radio's position is A-O Broadcasting
Corporation, in which the licensee claimed limited or no revenues in
support of its inability to pay argument, yet a number of
circumstances indicated that the licensee had access to additional
financial resources. Specifically, despite A-O Broadcasting's claimed
inability to pay the forfeiture, the licensee had the financial
resources to construct and operate the previously silent station from
a new location. In taking official notice of financial information
provided in another proceeding, we noted that A-O Broadcasting's
financial statements indicated that its operations and capital
investments were funded primarily by loans from its shareholder and by
a foundation whose president was also the owner and president of the
licensee. Citing these apparent resources, we rejected A-O
Broadcasting's inability to pay claim, concluding that the licensee
had failed to "prove that it does not have access to the resources
necessary to pay the forfeiture."
14. Like the licensees in Radio X and A-O Broadcasting, SM Radio clearly
has financial resources beyond those described in its financial
statements, yet has failed to provide information about those
resources. By SM Radio's own admission, its programmer pays its
operating expenses, and its owner or affiliated companies appear to
have paid its ownership fees, for renovation of its main studio, and
for the hiring of new employees. As noted in A-O Broadcasting, the
licensee has the burden of proving that it lacks the financial means
to pay a Commission forfeiture. Because SM Radio has not provided
financial data concerning all "potential sources of income available
to" it, we conclude that the record is insufficient to substantiate SM
Radio's inability to pay claim and we therefore affirm the Bureau's
order rejecting it.
15. With respect to SM Radio's argument that consideration of the revenues
of its affiliated entities would be tantamount to piercing the
corporate veil, we note that we do not have sufficient information at
this time to determine whether the corporate veil should be pierced,
nor do we seek to do so. Rather, our only objective is to evaluate SM
Radio's inability to pay claim by looking at all of its financial
resources, consistent with precedent and policy.
B. SM Radio's Gross Revenues Are Appropriately Considered In Assessing Its
Inability To Pay
16. SM Radio further argues that the Commission may not seek information
about its owner and affiliated companies because those revenues are
primarily religious in nature. The Commission typically has relied
upon a licensee's documented gross revenue in gauging its ability to
pay a forfeiture. In reviewing a licensee's financial documentation,
the Commission does not consider nor distinguish the sources of a
licensee's income. Additionally, the Commission does not consider the
status of the broadcaster or the nature of the programming. In this
connection, the Commission has stated that "a religious group, like
any other, may buy and operate a licensed radio or television
station.... But, like any other group, a religious sect takes its
franchise `burdened by enforceable public obligations.'" Accordingly,
SM Radio, by conducting its ministry through use of a radio license,
"has elected to occupy a forum that is not only distinctly public in
character, but one of a limited number of such public forums" and is
subject to the Commission's requirements and policies. We conclude
that SM Radio's status as a religious broadcaster does not shelter it
from its obligations to operate in accordance with its
responsibilities as a Commission licensee, nor exempt certain sources
of income from consideration in gauging its ability to pay.
IV. ORDERING CLAUSES
17. Accordingly, IT IS ORDERED that, pursuant to Section 1.115 of the
Rules, SM Radio, Inc.'s Application for Review of the Memorandum
Opinion and Order IS DENIED and the Enforcement Bureau's Memorandum
Opinion and Order IS AFFIRMED for the reasons set forth herein.
18. IT IS FURTHER ORDERED that a copy of this Order on Review shall be
sent by First Class and Certified Mail Return Receipt Requested to SM
Radio, Inc., P.O. Box 252, McAllen, Texas, 78502, and to its counsel,
Barry D. Wood, Esq., Wood, Maines & Brown, Chartered, 1827 Jefferson
Place, N.W., Washington, DC 20036.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
SM Radio's Application for Review (filed on January 27, 2005)
("Application for Review").
SM Radio, Inc., Memorandum Opinion and Order, 19 FCC Rcd 24812 (Enf. Bur.
2004) ("Bureau Order").
47 C.F.R. S: 73.1125.
SM Radio, Inc., Order of Forfeiture, 19 FCC Rcd 6155 (Enf. Bur. 2004)
("Forfeiture Order").
Notice of Apparent Liability for Forfeiture, NAL/Acct. No. 200332500011
(Enf. Bur., Dallas Office, released December 19, 2003). The Bureau issued
an erratum on January 9, 2004, amending the NAL to reflect that the
NAL/Acct. No. is "200432500002." Erratum, NAL/Acct. No. 200432500002 (Enf.
Bur., Dallas Office, released January 9, 2004).
Bureau Order, 19 FCC Rcd at 24813, P: 6 (noting specifically that Paulino
Bernal was the 100% owner of SM Radio, Inc., Paulino Bernal Evangelism, La
Radio Cristiana Network, Inc., and Consolidated Radio, Inc. as well as the
individual licensee of several broadcast stations.).
Personally and through a network of companies, SM Radio's owner controls
19 commercial radio stations, including Station KUOL(AM). SM Radio is
owned by Paulino Bernal, who also is the individual licensee for two AM
and two FM radio stations in Texas. Mr. Bernal also the 100% owner of La
Radio Cristiana Network, Inc., and Consolidated Radio, Inc., which control
three AM and three FM radio stations in Texas. Through his company,
Paulino Bernal Evangelism, Mr. Bernal and his family control eight
additional Texas FM radio stations, as well as 26 noncommercial
educational FM translator stations in various locations. See Ownership
Report For Noncommercial Educational Broadcast Station (FCC Form 323-E)
filed by Paulino Bernal Evangelism, April 1, 2005 (File No.
BOA-20050401CMR).
Application for Review at 2.
47 U.S.C. S: 503(b).
Application for Review at 3.
Application for Review at 7.
Id.
Id.
47 U.S.C. S: 503(b).
47 C.F.R. S: 1.80.
The Commission's Forfeiture Policy Statement and Amendment of Section 1.80
of the Rules to Incorporate the Forfeiture Guidelines, Report and Order,
12 FCC Rcd 17087 (1997), recon. denied, 15 FCC Rcd 303 (1999) ("Forfeiture
Policy Statement").
47 U.S.C. S: 503(b)(2)(E).
See PJB Communications of Virginia, Inc., Memorandum Opinion and Order, 7
FCC Rcd 2088, 2089 P: 8 (1992) ("PJB Communications"); see also Forfeiture
Policy Statement, 12 FCC Rcd at 17106-07 P: 43.
Radio X Broadcasting Corporation, Memorandum Opinion and Order, 21 FCC Rcd
12209, 12216 (2006) ("Radio X") (emphasis added); see also Forfeiture
Policy Statement, 12 FCC Rcd at 17158 P: 113 ("As for forfeitures that a
licensee believes it cannot afford to pay relative to its financial
situation, we must look to the totality of the circumstances surrounding
the individual case.")
KASA Radio Hogar, Memorandum Opinion and Order, 17 FCC Rcd 6256, 6258
(2002) ("[I]t is the Commission's general policy to consider the financial
condition of a licensee's consolidated operations, not just the financial
condition of an individual station or a limited portion of its
operations.") ; Emery Telephone, Memorandum Opinion and Order, 13 FCC Rcd
23854, 23859-60 P: 13 (1998), recon. denied, 15 FCC Rcd 7181 (1999)
("income from other affiliated operations, as well as the financial status
of the station(s) in question, can be taken into account" in evaluating an
inability to pay claim); Hinton Telephone Co., Memorandum Opinion and
Order, 7 FCC Rcd 6643, 6644 (CCB 1992), review denied, 8 FCC Rcd 5176)
("We find reviewing the data for consolidated operations rather than
financial data for Station WQZ687 more accurately portrays whether a
licensee can pay a proposed forfeiture. Our determination of a licensee's
ability to pay should reflect whether the licensee in general is
financially capable of paying a forfeiture, not whether financial data
from a limited portion of its operations can sustain a forfeiture.").
Radio X, 21 FCC Rcd at 12217 (parent company financial statements relevant
to evaluate inability to pay reduction request by parent's subsidiary
company); Forfeiture Policy Statement, 12 FCC Rcd at 17158 P: 113
("[t]he parent company's ability to pay, therefore, is relevant in
evaluating the subsidiary company's ability to pay the forfeiture"); Alpha
Broadcasting Corporation, Memorandum Opinion and Order, 102 FCC 2d 18 P: 6
(1984) ("In assessing the solvency of a broadcast licensee for purposes of
reducing a forfeiture, the Commission will examine the finances of the
parent corporation as well as its subsidiary to determine how the
forfeiture will affect the entire corporate financial position.").
Petition for Reconsideration at Attachment B. SM Radio has requested
confidential treatment of its revenue information; therefore, we do not
discuss the specific amounts here. Id. at 2-5.
See Petition for Reconsideration at 5, n. See also id. at 5 (describing
its programmer as "the religious organization that provides the bulk of
the programming aired on KUOL"). But see Application for Review at 7
(suggesting the "programmer" is the station owner).
See Supplement to Petition for Reconsideration, Declaration of Paulino
Bernal. In addition, Commission records indicate that one of the
affiliated licensees, La Radio Cristiana Network, Inc., has paid SM
Radio's ownership fees. See, e.g., KUOL-AM Station File, Facility ID#
60694, FCC Reference Information Center.
Application for Review at 3.
Radio X, 21 FCC Rcd at 12217, P:19.
Id.
A-O Broadcasting Corporation, Memorandum Opinion and Order, 20 FCC Rcd
756, 761-762 (2005) ("A-O Broadcasting").
Id., 20 FCC Rcd at 758, 761.
Id., 20 FCC Rcd at 762, P:18..
See paragraph 11 and note 24 supra.
In light of our decision here, SM Radio's argument that the Bureau lacked
delegated authority is moot.
See Publix Network Corporation et al., Order to Show Cause and Notice of
Opportunity for Hearing, 17 FCC Rcd 11487, 11504-05 (2002), consent decree
ordered, 20 FCC Rcd 5857 (2005).
See A-O Broadcasting, 20 FCC Rcd at 756 n. 23 (noting that a violator's
whole financial picture is needed to fully assess its inability to pay
claim, and is not an attempt to pierce the corporate veil).
Id.
See Forfeiture Policy Statement, 12 FCC Rcd at 17106-07; see also KASA
Radio, 17 FCC Rcd at 6257; PJB Communications, 7 FCC Rcd at 2089.
Licensees that wish to claim reduction in forfeiture for inability to pay
are instructed to provide: (1) federal tax returns for the most recent
three-year period; (2) financial statements prepared according to
generally accepted accounting practices ("GAAP"); or (3) some other
reliable and objective documentation that accurately reflects the
petitioner's current financial status. Any claim of inability to pay must
specifically identify the basis for the claim by reference to the
financial documentation submitted.
See, e.g., Rev. Yvon Louis, Forfeiture Order, 18 FCC Rcd. 16187 (Enf. Bur.
2003), recon. denied, 19 FCC Rcd. 17699 (Enf. Bur. 2004).
King's Garden, Inc. v. FCC, 498 F.2d 51, 60 (D.C. Cir. 1974), cert.
denied, 419 U.S. 996 (1974) (citing Office of Communication of the United
Church of Christ, 359 F.2d 994, 1003 (D.C. Cir. 1966)).
Faith Center, Inc., Memorandum Opinion and Order, 82 FCC 2d 1, P: 44
(1980).
47 C.F.R. S: 1.115.
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Federal Communications Commission FCC 08-32
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Federal Communications Commission FCC 08-32