11th Circuit Judges Show Skepticism of FCC's $518,000 Gray Television Penalty

The FCC’s rules “plainly” barred Gray’s 2020 purchase of an Anchorage station’s top-four network affiliation, said Chief Judge William Pryor. Judges Andrew Brasher and Adalberto Jordan, however, appeared sympathetic to Gray’s arguments that a rule barring deals resulting in a top-four duopoly don’t apply to an existing top-four duopoly adding another top-four station. “If I have two cars, and then I buy a third car, has my buying that third car resulted in me having two cars?” asked Brasher. “No, is the answer to that.”

Gray petitioned for review of the FCC’s 2021 ruling that it violated an FCC rule -- often called Note 11 -- barring stations from using affiliation deals to skirt ownership limits by acquiring the CBS affiliation of Denali Media's KTVA Anchorage in 2020 in a sale of “non-license assets,” and then broadcasting the programming on its KYES-TV Anchorage -- now KAUU -- while continuing to own NBC affiliate KTUU-TV Anchorage. Gray has argued that the penalty is extreme and unwarranted and that the FCC lacks authority over programming and has historically treated Note 11 as barring only swaps rather than all affiliation transactions. The FCC has said Gray is a “sophisticated” entity that should have known the deal was against the rules.

Attorneys told us that for Gray to truly win the case it needs the court to vacate the FCC’s forfeiture order -- a lesser measure such as remanding the matter to the commission over the forfeiture amount wouldn’t be much of a victory, they said. The reason is it wouldn’t address whether the agency had authority over affiliate deals or erred by not providing Gray with notice. If the court’s opinion challenges or affirms the FCC’s authority over affiliation deals, it could affect the upcoming legal case against the 2018 quadrennial review order. That order extended the top-four prohibition to multicast channels and low-power television stations. Attorneys told us it’s not clear when the 11th Circuit will issue an opinion on the case.

Pryor interrupted Gray attorney David Mills seconds after oral argument began, saying he didn’t believe the company could properly challenge the FCC’s statutory authority over the deal. Pryor said he agreed with FCC arguments that because Gray didn’t raise that issue before the FCC, it can’t be part of the appeal. “It seems to me the statutory authority question was one you didn’t preserve,” Pryor said. Mills and Brasher said that Gray raised the issue in its reply to the FCC’s notice of apparent liability, while FCC Deputy Associate General Counsel Sarah Citron said Gray’s arguments in that filing addressed only whether the rules applied to deals other than affiliation swaps, not whether the FCC has authority over deals involving network affiliation. “I think it's important for this court to address that issue, and it's important to get guidance in this circuit and a published decision about whether the agency has this authority,” said Mills.

Brasher seemed sympathetic to Gray’s arguments throughout the hearing, interrupting Citron to question the FCC’s position that the company should have known the Anchorage deal would violate the top-four prohibition because June ratings data showed that it owned a top-four station. Gray has argued that because the deal occurred in July, and July ratings data showed that it already owned two top-four stations, the agreement wouldn’t “result in” a new top-four duopoly. “Why would we look at June data when we have July?” Brasher said. Citron said the July data wasn’t yet available and that the agency uses the data from the last month preceding a transaction, not the current month.

Jordan also seemed to side with Gray on the meaning of the phrase “result in” in the FCC’s rules on transactions involving top-four affiliations. The FCC’s reading that the rule bars any transaction that involves a top-four station owner becoming the owner of an additional top-four station “doesn’t make sense” because it would also bar transactions where a top-four duopoly tried to trade a No. 1 station for a No. 4, Jordan said. The rule's purpose “is to prevent evasion of the rule for license transfers” and Gray “understood what the commission was trying to do.” The broadcaster “had no expectation” that the affiliation deal would be barred, said Mills. “Why in the world would Gray have ever sought to evade this rule if they thought this rule prohibited the transaction?” Pryor said the text of Note 11 clearly barred Gray’s deal. When “the plain language of the regulation says one thing, that's the end of the inquiry, it seems to me,” he said.

While Brasher seemed skeptical of the entire premise of the FCC’s forfeiture order, Pryor and Jordan questioned the agency’s calculation of Gray’s penalty. The FCC didn’t show that Gray’s violations were “egregious” in the initial notice of apparent liability, but then used the argument that they were egregious as a justification for increasing the penalty, Pryor said. “That seems to me arbitrary and capricious, to be acting based on a factual premise agency record contradicts.” Citron said the FCC identified Gray’s conduct as “conscious and deliberate,” but “that doesn’t mean egregious,” Pryor said. There is “no reason to think” that the FCC would have imposed a lower penalty on Gray even if it didn’t view the conduct as egregious, Citron said.