• Bankruptcy Wipes Out FCC Fine
  • June 11, 2009
  • Law Firm: Davis Wright Tremaine LLP - Washington Office
  • In a case released this week, the FCC decided to forgive a fine that had been imposed on a radio station for not timely filing its license renewal (and for operating after the license expired without authority).  The fine was eliminated because the station's operator had declared bankruptcy, and the persons who were in charge of the station at the time of the violation were no longer involved in its operation.   Instead, the bankruptcy court had approved a receiver who had sold the station to an unrelated third party.  The Commission found that continuing to require that the bankrupt estate pay the fine would only deprive legitimate, innocent creditors of money to pay the company's debts.  Thus the FCC rescinded the fine.  Note that, in previous cases, the FCC had said that it could hold the seller of a station liable for fines even after the sale had been completed (see our post). Had it not been for the bankruptcy and this decision, the old licensee could have been fined even though the station had been sold.

    This decision and the cases that it cites are important in the current economic climate, where there are already many broadcast stations in bankruptcy, and quite possibly more will be following that route.  One of the principal delays that often occurs in the sale of a broadcast station is a delay caused by a pending complaint against a station that could potentially result in a fine or other penalty against the station's licensee.  In such cases, where the station seller is leaving the broadcast industry, the FCC often requires the seller to put the amount of the potential fine for any rule violation into an escrow account, and sign an agreement allowing the FCC to recover the portion of the escrow necessary to satisfy any fine that may be imposed in the future.  These "tolling agreements" (called that because they toll the statute of limitations that may apply to a fine) may delay a sale, and many sellers are reluctant to escrow funds, particularly where they may not feel that the pending complaint has merit.  In a bankruptcy case, were the FCC to insist on one of these tolling agreements and an escrow account, the bankrupt estate may well not be able to come up with the funds for such an account (and the bankruptcy court might not approve the expenditure of such funds if there are other creditors with a higher priority to the funds than the FCC, as an unsecured creditor with a claim that has not even been adjudicated).  By determining that a bankruptcy wipes out a fine, if the station is sold to an innocent third party, the FCC avoids these issues.  Thus, the decision in this case is a clear indication that the FCC is not going to allow a pending fine to work as an impediment to the orderly disposition of a bankrupt radio station.