Federal Communications Commission FCC 97D-09Federal Communications Commission FCC 97D-09 7. Since...

Federal Communications Commission FCC 97D-09

Before theFederal Communications Commission

Washington, D.C. 20554

In the Matter of MM Docket No. 95-154

CONTEMPORARY MEDIA, INC. )

Licensee of Stations WBOW(AM), WBFX(AM), and )WZZQ(FM), Terre Haute, Indiana )

Order to Show Cause Why the Licenses for )Stations WBOW(AM), WBFX(AM), and WZZQ(FM), )Terre Haute, Indiana, Should Not be Revoked )

CONTEMPORARY BROADCASTING, INC. )

Licensee of Station KFMZ(FM), Columbia, )Missouri, and Permittee of Station KAAM-FM, )Huntsville, Missouri (unbuilt) )

Order to Show Cause Why the Authorizations for )Stations KFMZ(FM), Columbia, Missouri, and )KAAM-FM, Huntsville, Missouri, Should Not be )Revoked )

LAKE BROADCASTING, INC. )

Licensee of Station KBMX(FM), Eldon, Missouri, )and Permittee of Station KFXE(FM), Cuba, )Missouri )

Order to Show Cause Why the Authorizations for )Stations KBMX(FM), Eldon, Missouri, and )KFXE(FM), Cuba, Missouri, Should Not be Revoked )

LAKE BROADCASTING, INC. )

For a Construction Permit for a New FM Station )on Channel 244A at Bourbon, Missouri )

Appearances

Shelley Sadowsky, Esquire, Michael D. Gaffney, Esquire, Jerold L. Jacobs, Esquire, and Howard J. Braun, Esquire, on behalf of Contemporary Media, Inc., Contemporary Broadcasting,

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File No. BPH-921112MH


Inc., and Lake Broadcasting, Inc.; Robert A. Zauner, Esquire, and Anthony Mastando, Esquire, on behalf of the Chief, Mass Media Bureau, Federal Communications Commission.

INITIAL DECISION OF ADMINISTRATIVE LAW JUDGE ARTHUR I. STEINBERG

Issued: August 18, 1997 Released: August 21, 1997

PRELIMINARY STATEMENT

1. By Order to Show Cause and Notice of Apparent Liability, 10 FCC Red 13685 (1995) ("OSC"), the Commission directed Contemporary Media, Inc., Contemporary Broadcasting, Inc., and Lake Broadcasting, Inc. (collectively the "Licensees"), to show cause in a hearing why the licenses and construction permits held by the Licensees should not be revoked. The following issues were specified:

(1) To determine the effect of Michael Rice's convictions on the basic qualifications of Contemporary Media, Inc., Contemporary Broadcasting, Inc., and Lake Broadcasting, Inc.

(2) To determine whether Contemporary Media, Inc., Contemporary Broadcasting, Inc., and Lake Broadcasting, Inc., misrepresented to the Commission that, subsequent to his arrest, Michael Rice has been excluded from the management and operation of the Contemporary Media, Inc., Contemporary Broadcasting, Inc., and Lake Broadcasting, Inc., radio stations.

(3) To determine, pursuant to Section 310(d) of the Communications Act of 1934, as amended, and Section 73.3540 of the Commission's Rules, whether Michael Rice has engaged in the unauthorized transfer of control of Contemporary Media, Inc., Contemporary Broadcasting, Inc., and Lake Broadcasting, Inc.

(4) To determine, in light of the evidence adduced under the foregoing issues, whether Contemporary Media, Inc., Contemporary Broadcasting, Inc., and/or Lake Broadcasting, Inc., possess the requisite qualifications to be or remain licensees of their respective radio stations.

2. Pursuant to Section 312(d) of the Communications Act of 1934, as amended ("Act"), the OSC assigned to the Mass Media Bureau ("Bureau") both the burden of proceeding with the evidence and the burden of proof on all the issues. (OSC at para. 22.) In addition, the OSC stated that if the hearing record does not warrant an order revoking the above-captioned licenses, it shall be determined whether any of the Licensees has willfully or repeatedly misrepresented

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facts to the Commission in violation of Section 73.1015 of the Commission's Rules, or has engaged in an unauthorized transfer of control in violation of Section 310(d) of the Act and Section 73.3540 of the Rules. If so, the OSC further stated that it shall also be determined whether an order of forfeiture should be issued pursuant to Section 503(b) of the Act in an amount up to $250,000 for such violation(s) of the Act and/or the Rules. (Id. at para 24.)

3. Prehearing conferences were held on November 29, 1995, and March 5, 1996. The hearing commenced in Washington, D.C., on April 2, 1996, with the admission of the parties' respective written direct case exhibits. Witnesses appeared for live testimony in Washington, D.C., on April 9, May 21, and May 22, 1996. The record was initially closed at the conclusion of the May 22, 1996, hearing session. (Tr. 642; Order, FCC 96M-128, released May 28, 1996.) Proposed findings of fact and conclusions of law were filed by the Licensees and the Bureau on September 9, 1996. Reply findings and conclusions were filed by those parties on October 4, 1996. By Order, FCC 97M-49, released April 4, 1997, the record was reopened for the limited purpose of receiving additional information into evidence. The record was then reclosed. (Id.)

FINDINGS OF FACT

Licensees' Ownership and Control

4. Contemporary Media. Inc. ("CMT"). CMI is the licensee of Stations WBOW(AM), WZZQ(AM), and WZZQ(FM), Terre Haute, Indiana. Michael Rice ("Rice") is the sole shareholder of CMI. (Lie. Ex. 1, p. 2.) Pursuant to the CMI bylaws, the Board of Directors consists of three persons elected by the shareholders to serve a term of one year. (Id. at 2 and Appx. A, p. 2.) For several years until August 23, 1991, CMTs Board consisted of Rice, his father, Malcolm Rice, and Martin Toft. On August 23, 1991, Toft resigned from the Board, and Janet Cox was appointed to replace him. The makeup of the Board has remained unchanged since then. (Id. at 2-3.)

5. Since CMI was established, Rice has been the President and Treasurer, and Malcolm Rice has been a Vice President of CMI, and they continue to hold these titles. By resolution of the Board dated March 13, 1991, Cox became a Vice President of CMI, and she continues to hold this title. Cox became the Secretary of CMI upon Toft's resignation from that position on August 23, 1991. (Lie. Ex. 1, p. 3.)

6. Contemporary Broadcasting. Inc. ("CBI"). CBI, which is a wholly-owned subsidiary of CMI, is the licensee of Station KFMZ(FM), Columbia, Missouri, and the permittee of Station KAAM-FM, Huntsville, Missouri. (Lie. Ex. 1, p. 3.) Pursuant to the CBI bylaws, the Board of Directors consists of three persons elected by the shareholders to serve a term of one year. (Id. at 3 and Appx. B, p. 2.) Like CMI, CBI's Board consisted of Rice, Malcolm Rice, and Toft for several years until Toft's resignation on August 23, 1991. At that time, Cox was appointed to replace him. The makeup of the Board has remained unchanged since then. (Id. at 3-4.)

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7. Since CBI was established, Rice has been the President and Treasurer, and Malcolm Rice has been a Vice President of CBI, and they continue to hold these titles. By resolution of the Board of Directors dated May 8, 1991, Cox became a Vice President of CBI, and she continues to hold this title. Cox also became the Secretary of CBI upon Toft's resignation from that position on August 23, 1991. (Lie. Ex. 1, p. 4.)

8. Lake Broadcasting. Inc. ("LBI"\ LBI is the licensee of Station KBMX(FM), Eldon, Missouri, the permittee of unconstructed Station KFXE(AM), Cuba, Missouri, and an applicant for a new FM station in Bourbon, Missouri. The original shareholders of LBI were Rice (67.5 percent), Dennis Klautzer (20 percent), and Kenneth Kuenzie (12.5 percent). (Lie. Ex. 1, p. 4.) On March 13, 1997, the shares of LBI held by Klautzer and Kuenzie were sold, transferred and assigned to LBI, where they remain held as treasury stock. (Order, FCC 97M-49, released April 4, 1997.) Therefore, Rice now holds all of the issued shares of stock in LBI, other than treasury stock.

9. Pursuant to the LBI bylaws, the Board of Directors consists of two persons elected by the shareholders to serve a term of one year. (Lie. Ex. 1, p. 4 and Appx. C, p. 4.) From 1988 until March 13, 1997, LBI's Board consisted of Rice and Kuenzie. Since LBI's formation, Rice has held the titles of President and Treasurer, Kuenzie has held the title of Vice President, and Klautzer has held the title of Secretary. In December 1991, Cox was appointed Vice President of Lake by resolution of the Board of Directors. On March 13, 1997, Klautzer resigned from the position of Secretary of LBI, and Kuenzie resigned from the positions of Vice President and Director of LBI. (Id. at 4-5; Order, FCC 97M-49, released April 4, 1997.)

Issue 1: The Felony Convictions of Michael Rice

10. In November 1990, Rice was arrested in St. Charles County, Missouri, for criminal charges involving sexual acts with a teenager, and formal criminal proceedings were initiated against him. At a March 21, 1991, preliminary hearing, the Associate Judge of the Circuit Court of St. Charles County found probable cause to certify the case for arraignment in Circuit Court. (Bur. Ex. 1, pp. 37-38.)

11. On April 1, 1991, the Prosecuting Attorney of St. Charles County issued an Information formally charging Rice with three counts of the felony of deviate sexual assault of an individual who was between 14 and 16 years of age. (Bur. Ex. 12.) The Information was subsequently amended on January 6, 1993, and July 5,1994. (Bur. Ex. 1, pp. 7-12; Bur. Ex. 13.) In the July 5, 1994, Second Amended Information, Rice was charged with eight counts of the felony of deviate sexual assault of individuals who were between 14 and 16 years old, and four counts of the felony of sodomy of individuals who were less than 14 years of age. Rice's alleged misconduct took place between December 1985 and October 1990. (Bur. Ex. 1, pp. 7-12.) Rice entered a plea of not guilty to the Second Amended Information. (Id. at 14.)

12. On July 11, 1994, Rice, his criminal attorney, and the Assistant Prosecuting Attorney executed a Memorandum stipulating to the testimony that the parties expected to be given at trial

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by certain witnesses if they were called to testify. (Bur. Ex. 1, pp. 14-19.) The Memorandum stated that Rice "specifically does not admit that any of the testimony is true or that any of the acts took place." (Id. at 14.) With respect to 11 of the 12 counts, the prospective witnesses would have testified that "Rice put his mouth on [the witnesses'] genitals." (Id. at 15-18.) With respect to the twelfth count, a witness would have testified that Rice "put his hand on [the witness'] genitals." (Id. at 18.) The Memorandum further stated that the acts described by the witnesses "constitute[ ] deviate sexual intercourse." (Id. at 19.) Rice offered no evidence and, by the Memorandum, made a Motion for Judgment of'Acquittal. The1 matter was submitted to the Circuit Court of St. Charles County for a decision. (Id.)

13. On August 31, 1994, Rice was convicted of four counts of sodomy (RSMo. Section 566.060), six counts of deviate sexual assault in the first degree (RSMo. Section 566.070), and two counts of deviate sexual assault in the second degree (RSMo. Section 566.080). (Bur. Ex. 1, pp. 2-3, 21-22.) Each of these convictions constituted a felony. (Id. at 7-11.) The offenses for which Rice was convicted involved five children. (Id. at 3.)

14. Rice was sentenced to eight years in prison for each of the four sodomy counts, seven years in prison for each of the six deviate sexual assault in the first degree counts, and five years in prison for each of the two deviate sexual assault in the second degree counts. Rice's sentences, totalling 84 years, were to run concurrently. (Bur. Ex. 1, pp. 2-3, 21-22.) Therefore, the maximum time Rice would have to be imprisoned was eight years. Rice was incarcerated at the Farmington Correctional Center, Farmington, Missouri, on September 30, 1994. (Id. at 3; Lie. Ex. 1, p. 14.) Rice did not testify in this proceeding, although it appears that such testimony could have been arranged. (Letter to the Presiding Judge from the Licensees' counsel, dated December 12, 1995, official notice taken; see also tr. 15-17.)

Mitigating Factors

15. In mitigation of Rice's felony convictions, the Licensees presented the following evidence.

16. Licensees' Record^of Compliance with FCC Rules and Policies. Since then- inception, Station KBMX, licensed to LBI, and Station KFMZ, licensed to CBIr have never been fined by the FCC. WBOW and WZZQ, each licensed to CMI, have been fined once. In November 1989, they received forfeitures totalling $900 for a logging violation in connection with Emergency Broadcast System transmissions and an improperly prepared quarterly issues/programs list. Otherwise, the Licensees' collective record before the Commission has been unblemished. (Lie. Ex. 1, pp. 14-15.)

17. Rice's Reputation for Good Character in the Community. Four individuals who have known Rice personally and/or professionally for many years offered written statements relating to Rice's character and reputation in the broadcast community. (Lie. Ex. 5.)

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18. J. S. Sellmeyer, P.E., a consulting broadcast engineer who has known Rice for more than 20 years on both a personal and professional basis, stated:

Mr. Rice has been a conscientious and progressive broadcaster in the period of time I've known him. He has always put forth his best efforts and the financial resources necessary to provide the best facilities and community service in the communities he serves. He has also provided guidance to many people in the broadcast industry, many of whom hold positions of high responsibility in the industry today.

In sum, Michael Rice and the licensee corporations, in my opinion, have always operated high quality broadcast stations and have always done their utmost to operate in full compliance with all Commission Rules and Policies. They have been honest, responsible broadcasters.

(Lie. Ex. 5, pp. 7-8.) Sellmeyer's written statement made no reference to Rice's felony convictions. (Id.)

19. James Andrew Butler, a Communications Systems Engineer with the Public Broadcasting Service, Alexandria, Virginia, who worked as the Operations Manager at KFMZ for four years beginning in 1971, stated:

I have kept in touch with Mike Rice, visiting his expanding operations from time to time, participating with him in industry conferences and watching him work on volunteer association committees to help improve broadcasting. I have found him to be a consistent source of information and inspiration. He has a keen understanding of the business of broadcasting and a strong commitment to "do it right", [sic] This knowledge and commitment have been a great benefit to the communities his stations serve and the larger community of the US Broadcasting [sic] industry. I continue to learn from him and be constantly challenged by his high standards.

(Lie. Ex. 5, pp. 1-3.) Butler's written statement, which consisted of the August 12, 1994, letter he wrote to the Associate Circuit Judge of the Circuit Court of St. Charles County, Missouri, in connection with Rice's sentencing in the criminal case, also stated: "Since I have not been in the midwest for some time, I am not familiar with the case you are considering[.}" (Id. at 2.)

20. Ronald P. Thompson, an insurance broker who brokered property and casualty insurance for Rice and the Licensees' stations since 1985, stated:

All of my dealings with Michael Rice (at least once a year), were professional and businesslike. He was always fair and honest with me, and considerate of my advice. . . .

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Mike Rice recognized the importance of incorporating community involvement with his stations, to build up listeners and produce advertising revenue. His reputation in the radio broadcast business was excellent, according to everything I heard.

(Lie. Ex. 5, p. 10.) Thompson's written statement made no reference to Rice's felony convictions. (Id.)

21. William E. White, Chairman of the Board and General Manager of Station KIRL(AM), St. Charles, Missouri, has known Rice for 30 years. He stated:

Mike Rice was our Chief Engineer for 17 years, and he has done an excellent job.

Mike has created a lot of jobs and helped a lot of other people at his other Radio Stations in Indiana and Missouri.

Through his engineering ability he has helped other women and men to attain their goals. A person like him with his education and background & leadership ability can continue to help ladies and men complete their education, and help them with employment opportunities across the country.

(Lie. Ex. 5, p. 12.) White's written statement made no reference to Rice's felony convictions. (Id.)

22. Participation of Managers and Owners in the Misconduct. No other officer, director, shareholder or managerial employee of the Licensees, nor any of the Licensees' stations, were in any way involved in the criminal misconduct for which Rice was convicted. (Lie. Ex. 1, p. 15.)

23. Frequency and Currentness of the Misconduct. The misconduct for which Rice was convicted took place between December 1985 and October 1990. (Bur. Ex. 1, pp. 7-12.) There is no evidence that Rice engaged in any misconduct subsequent to those dates. Nearly seven years have passed since the last event giving rise to felony convictions of Rice.

24. Seriousness of the Misconduct. Rice was convicted of four counts of sodomy, six counts of deviate sexual assault in the first degree, and two counts of deviate sexual assault in the second degree. (Bur. Ex. 1, pp. 2-3, 21-22.) Each of these convictions constituted a felony. (Id. at 7-11.) The offenses for which Rice was convicted involved five children. (Id. at 3.)

25. Rice was sentenced to eight years in prison for each of the four sodomy counts, seven years in prison for each of the six deviate sexual assault in the first degree counts, and five years in prison for each of the two deviate sexual assault in the second degree counts. Rice's sentences, totalling 84 years, were to run concurrently, so that the maximum time Rice would

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have to be incarcerated was eight years. (Bur. Ex. 1, pp. 2-3, 21-22.) Rice was incarcerated on September 30, 1994. (Id. at 3; Lie. Ex. 1, p. 14.)

26. Measures Taken to Prevent Further Misconduct. In July 1982, Cox was hired by Rice and his father, Malcolm Rice, as a bookkeeper with CBI and CMI. (Lie. Ex. 1, p. 2.) At that time, CBI owned Station KFMZ, and CMI had recently purchased Stations WBOW and WBOQ(FM) (now WZZQ(AM) and WZZQ-FM, respectively). Over time, Cox was delegated managerial responsibilities and, within approximately two years, became1 responsible for hiring and training the stations' traffic and sales employees and developing the stations' annual budgets. She also made presentations of CMI and CBI's business and financial plans to banks to obtain financing, and evaluated the business operations of potential station acquisitions. (Id. at 5.)

27. In 1988, when Rice, Kuenzie and Klautzer formed LBI to own and operate KBMX, Cox was involved in the station's start-up. She hired the sales and support staff, established office procedures, negotiated contracts, made presentations to banks for loans, and dealt with all vendors relating to furnishing the station's offices. (Lie. Ex. 1, pp. 5-6.)

28. Cox's role hi the day-to-day management of the Licensees and oversight of the radio stations' business operations increased from 1988 to 1991, as Rice devoted more of his time to engineering and technical matters and to his other business interests such as real estate and broadcast tower leasing. 1 Kuenzie and Klautzer, LBI's former shareholders/officers, each were, and continued to be, employed full-time at other broadcast stations, which limited their involvement in overseeing the day-to-day management of the LBI station. (Lie. Ex. 1, pp. 6, 9- 10.)

29. On or about April 3,1991, approximately two days after Rice was formally charged in the criminal case, he was voluntarily hospitalized at the Barnes Hospital, St. Louis, Missouri, for in-patient psychiatric treatment. In view of the criminal charges, the Licensees' respective Boards of Directors adopted resolutions providing that Rice shall have "no managerial, policy, or consultative role in the affairs" and daily operations of the Licensees' stations. Rice did not participate in the adoption of these resolutions, which were adopted hi lieu of 1991 annual meetings of the Boards. (Lie. Ex. 1, pp. 6-7 and Appx. D, E and F.) Cox testified that it was her idea, without consulting counsel, to adopt the resolutions. (Tr. 329.)

30. The corporate resolutions provided that, hi consultation with Malcolm Rice and in conjunction with the station managers, Cox was to assume the responsibilities of Chief Executive Officer of CMI and CBI and supervise the managerial and policy decisions, as well as the day-to day operations, of their stations. (Lie. Ex. 1, p. 8 and Appx. D and E.) Daniel Leatherman,

1 CMI owns two AM towers in Terre Haute, Indiana. CBI owns broadcast towers in Columbia and Ashland, Missouri, both of which have tenants. LBI owns a broadcast tower in Lake of the Ozarks, Missouri, which has tenants, and Rice, personally, owns the FM tower on which WZZQ-FM and various tenants' antennas are located. (Lie. Ex. 1, p. 6.)

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general manager of Station KBMX, in consultation with Kuenzie, was to assume the same responsibilities with respect to LBI's built and unbuilt stations. (Id. at Appx. F.) However, because Kuenzie was involved full-time in the ownership and operation of stations in Washington, Missouri, he delegated to Cox the responsibility of working with Leatherman in overseeing the day-to-day management and operations of KBMX. (Id. at 9.) Cox's elevation to the position of Chief Executive Officer of CMI and CBI was reflected in a salary increase and Employment Agreement which she entered into with CMI and CBI on June 1, 1991. (Id. at 9 and Appx. H.)

31. Within a few weeks after Rice was hospitalized, Cox traveled to each of the Licensees' stations for meetings with the staffs for the purpose of informing them of her assumption of the Chief Executive Officer position and of Rice's withdrawal from the management of the stations. (Lie. Ex. 1, p. 9.) Cox testified that she told the various stations' staff members, not all of whom attended the meetings, that Rice was hospitalized and would not be involved in the operations of the stations, that the stations would continue to operate hi the manner in which they had been operating, that is, "very professionally," and that "these individuals were that station, not anyone else." She did not give the staff members a time frame in which Rice would remain uninvolved in the stations because she did not know at that time how long Rice was going to stay in the hospital. She did not inform the staff members of the corporate resolutions referred to above, nor did she inform the staff members that, even after Rice left the hospital, he was not to be involved in station operations. (Tr. 208-09; see also Tr. 394- 97.)

Issues 2 and 3: Misrepresentation and Transfer of Control Issues

Licensees' Notifications to the FCC of Michael Rice's Status

32. On June 14, 1991, LBI filed with the Commission a "Statement Pursuant to Section 1.65 of the Commission's Rules" reporting the then pending criminal charges against Rice. The statement was five pages hi length, was signed by Kuenzie hi his capacity as Vice President of LBI, and was filed in connection with a then pending major modification application of LBI. (Bur. Ex. 1, pp. 34-40.) Therein, it was reported that:

Since Mr. Rice's hospitalization on April 3, 1991, he has had absolutely no managerial, policy, or consultative role hi the affairs of the [Licensees] hi which he has ownership interests and officer positions. ... In other words, pending a resolution of the referenced criminal charges, Mr. Rice is being completely insulated and excluded from any involvement in the managerial, policy, and day-to-day decisions involving any of the four licensed stations and three construction permits held by the [Licensees]. Instead, and most importantly, all such decisions are being made, and the four operating stations are being run, in a collegia! manner by a combination of corporate officers and skilled and experienced professional employees [including Cox, Malcolm Rice, and the stations' managers].

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(Id. at 39, emphasis added.) The statement also made reference to the Commission's Policy Statement Regarding Character Qualifications, 5 FCC Red 3252 (1990) (subsequent history omitted) ("1990 Character Policy Statement"). (Id. at 36; see also id. at 34.)

33. On June 21, 1991, CBI filed with the Commission a second "Statement Pursuant to Section 1.65 of the Commission's Rules." This statement was five pages long, and was signed by Cox in her capacity as Vice President of CBI. The portion of the June 14, 1991, statement quoted in the preceding paragraph was repeated in CBI's June 21, 1991, filing. This statement, too, referred to the 1990 Character Policy Statement. (Judge's Ex. 1.)

34. On August 1, 1991, CBI filed an application (FCC Form 307) for an extension of its construction permit for Station KTDI(FM), Huntsville, Missouri. Exhibit 2 to that application made reference to CBI's June 21, 1991, Section 1.65 statement and contained the following language:

Mr. Rice continues to be hospitalized and to have absolutely no managerial, policy, or consultative role in the affairs of [CBI]. In particular, Mr. [sic] Janet Cox, a Vice President of [CBI], continues to make all policy decision [sic] pertaining to unbuilt Station !>.TDI(FM), in consultation with Vice-President Malcolm R. Rice.

(Bur. Ex. 1, pp. 42-43, emphasis added.)

35. By letter dated December 3, 1991, to Stuart B. Bedell, Assistant Chief of the Bureau's Audio Services Division, CBI updated the status of Rice's criminal prosecution. The letter was three pages in length and stated:

In addition, Mr. Rice continues to have no managerial, policy, or consultative role in the affairs of KTDI(FM), and Ms. Janet Cox continues to make all policy decisions, if any, pertaining to the unbuilt station.

(Bur. Ex. 1, pp. 42-44, emphasis added.) By letter dated February 26, 1992, to Mary McDonald of the Audio Services Division's AM Branch, CMI informed the Commission that Cox is a "regular vice-president" of CMI and that there had been no change in the status of the criminal proceedings against Rice. (Id. at 46-47.)

36. By letter dated May 14, 1992, CBI transmitted another FCC Form 307 application relating to Station KTDI(FM). Attached to the application was a two-page exhibit entitled "Representations in Original Application that are No Longer 'True and Correct' (FCC Form 307, Q. 8)." Therein, CBI stated:

There has been no change in Mr. Rice's status with [CBI] or in the status of the proceedings against him since [CBI's] December 3, 1991 letter to Stuart B. Bedell .... Mr. Rice is no longer hospitalized, but he continues to be treated by

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his physicians as an outpatient, and he continues to have no managerial or policy role in the affairs of the [Licensees] in which he has ownership interests and corporate positions ....

(Lie. Ex. 1, Appx. G-2, emphasis added.)

37. By three-page letter to the Commission filed on September 30, 1994, the Licensees reported that on August 31, 1994, Rice had been:

formally convicted and sentenced to eight years confinement on four counts of sodomy; seven years confinement on six counts of first degree deviate sexual assault; and five years confinement on two counts of second degree deviate sexual assault.

The Licensees further stated that Rice's incarceration began on September 30, 1994. (Bur. Ex. 1, pp. 53-55.)

38. On the subject of Rice's insulation from corporate affairs, the September 30, 1994, letter stated:

[CBI/LBI] has previously reported to the Commission that since Mr. Rice's pre- trial hospitalization on April 3, 1991, he has been excluded from involvement in the customary managerial, policy, and day-to-day decisions and operations of [CBI/LBFs] licensed stations and construction permits. Instead, such decisions have been made and continue to be made primarily by corporate Vice-President Janet Cox and by other experienced professional station employees. [CBI/LBI] wishes to advise the Commission that this exclusion policy will continue throughout Mr. Rice's period of incarceration.

(Bur. Ex. 1, p. 54, emphasis added.) The Licensees also requested a 90-day period within which to file a brief presenting their arguments against the initiation of a revocation proceeding, stating:

[The Licensees are] aware that, historically, the Commission may commence revocation proceedings against licensees where a principal has been convicted of a felony. However, [the Licensees] strongly believe[ ] that such a proceeding should not be commenced herein for sound legal reasons. To this end, counsel are preparing a comprehensive brief to justify their position. This brief will also be used in partial response to the Informal Objection filed on September 26,1994 by KWDC, Inc. against Station KAAM's pending application for extension of construction permit ....

(Id. at 54-55, emphasis in original.)

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39. Other updates on Rice's criminal proceeding and his status with respect to the stations were provided in Section 1.65 statements, applications and correspondence filed with the Commission in July 1991, September and November 1992, February and June 1993, and August 1994. (Lie. Ex. 1, p. 7.) However, the record does not contain copies of these documents.

40. Cox testified that during Rice's approximate six-month hospitalization, and for several weeks after his discharge in October 1991 (Tr. 537), she had no direct contact with him. She stated that although she had indirect contact with Rice through his father, Malcolm; who visited him in the hospital, Malcolm Rice did not relay any instructions to her from Rice concerning how to run the stations. (Tr. 220-21; Lie. Ex. 1, p. 10.)

41. Several weeks after his release from the hospital, Rice came to the Licensees' headquarters office and informed Cox that his psychiatrist advised him that it was important for his mental health to resume business interests that he enjoyed and to remain active. (Lie. Ex. 1, pp. 10-11.) Rice told her that he might be interested, from time to time, in "working on repair of equipment, things of that nature, but he said nothing . . . heavy." (Tr. 204.)

42. Given the circumstances of Rice's impending criminal trial, Cox suggested that it would be in the best interest of the Licensees, from both a public relations and a regulatory standpoint, that he remain completely uninvolved in the oversight and management of the Licensees' operations until and unless he was exonerated, and Rice concurred. (Lie. Ex. 1, p. 11.) When asked to explain her regulatory concern, Cox indicated that it was in connection with the fact that the Licensees had been reporting to the Commission that Rice "was not involved, so therefore he should not be involved." (Tr. 224.)

43. However, Cox decided that Rice could provide assistance to the Licensees' consulting engineers and stations' chief engineers on technical projects for the stations, as necessary, without becoming involved in the stations' management, policy making, or day-to-day operations. (Lie. Ex. 1, p. 11.) She made that decision, in her words, from an "economic standpoint," that is, since Rice was receiving a salary, she told him "we might as well get some good out of you." (Tr. 225.) Cox spoke to the Licensees' FCC attorneys before agreeing to permit Rice to perform tasks for the stations (Tr. 207), but she did not speak to Rice's doctors about that matter (Tr. 204). The technical projects that Rice worked on were cleared with Cox first. (Tr. 205, 225.)

44. In connection with the reports filed with the Commission, Cox stated hi her written testimony that because Rice began to engage in limited and sporadic engineering tasks for the stations in early 1992, the Licensees' reports filed with the Commission were "modified" to "more accurately" describe Rice's changed role. Specifically, prior to May 1992, the reports stated that Rice had no managerial, policy, or "consultative" role in the affairs of the Licensees and their stations. However, in the May 14, 1992, and subsequent reports, the reference to "consultative" role was deleted. Thus, the May 14, 1992, report stated that "[Rice] continues to have no managerial or policy role in the affairs of the [Licensees] . . ." (Lie. Ex. 1, p. 8 and Appx. G-2, emphasis added.) Cox testified that: "What we were trying to do [by eliminating the phrase 'consultative role'] was to be as truthful as possible with the FCC." (Tr. 292.) When

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asked by the Presiding Judge why a direct statement to the effect that Rice began engaging in limited or sporadic engineering tasks for the stations was not included in the reports filed with the Commission, Cox answered: "I don't know." (Tr. 292-9S.)2

45. Cox testified that the decision to drop the reference to "consultative" role was made by her. She did so because she was then using, and intended in the future to use Rice in a consultative capacity. (Tr. 291, 298.) She stated: "He was drawing a paycheck. He was available at certain times. So ... I said why not ~ as the expression goes ~ why nof get some bang for the buck." (Tr. 298.)

46. No corporate resolutions were passed authorizing Rice to undertake consultative work for the Licensees' stations. As to why that was the case, Cox explained that the corporations had always been informally structured, and that "there were a lot of things going on in Mike Rice's life" at the time, namely, his legal proceedings and his mother's ill health. Cox stated that it was "a housekeeping function that was not done." (Tr. 328-29.)

47. The following table summarizes the amount of salary Rice was paid during the relevant periods of time.

Time Period

April 1, 1991, through December 31, 1991

January 1, 1992, through December 31, 1992

January 1, 1993, through December 31, 1993

January 1, 1994, through September 30, 1994

Total Salary Paid to Rice

$45,000

$60,000

$75,010

$58,504

(Tr. 536-37.)

Michael Rice's Post-Hospitalization Involvement in Technical/Engineering Projects

48. Cox testified that Rice assisted from time to time in the repair or installation of equipment at the various stations. For instance, in the spring of 1992, the construction of CMTs second AM station on 640 kHz (now WBOW) got underway in Terre Haute, and Rice assisted the engineers in the installation and proofing of the station's directional antenna. The station received program test authority in October 1992. (Lie. Ex. 1, p. 11.) Cox also described Rice's participation in some projects as that of a "go'fer," that is, one who ran errands for such items as wire, batteries, and soft drinks for the other workers. (Tr. 281-82.)

2 Elsewhere in the record, Cox stated that she is "a pretty straightforward person" and the Presiding Judge agreed with her assessment. (Tr. 218.)

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49. Daniel Leatherman, the general manager of LBI's station KBMX from September 1990 to mid-March 1996 (Lie. Ex. 3, p. 1; Tr. 133-34), testified that Rice's purpose for visiting KBMX from time to time was to work on technical equipment (Tr. 152). For instance, Rice helped in the construction of a second production studio for KBMX. (Lie. Ex. 3, pp. 1-2; Lie. Ex. 1, p. 12.) Leatherman testified that after April 1991, Rice helped install equipment at the station "[a] lot less" frequently than before April 1991. (Tr. 172.) In addition, Rice's on-site visits to the station were usually at night and on weekends, and Leatherman recalled that.Rice and Eric Hoehn, the KBMX chief engineer, were there to fix equipment during:normal business hours only if there was a major problem which, after April 1991, happened "maybe once. Not too often." (Tr. 174, 176; Lie. Ex. 1, p. 11.)

50. Leatherman also testified that Rice did not supervise the technical operation of the station. That was done by Hoehn. (Tr. 174.) Further, if KBMX experienced technical difficulties, Rice was not one of the persons who was telephoned. According to Leatherman, if the chief engineer was not available, Kenneth Kuenzie was called. (Tr. 177.) Rice's name and telephone number were not on the station's list of individuals to call in case of an emergency. (Tr. 177-78.) Cox similarly testified that Rice was not contacted if one of the Licensees' stations experienced technical problems. Such problems were reported to station management and the station engineer. (Tr. 337-38.)

51. Kenneth Brown, general manager of CMI's stations WZZQ(AM), WZZQ(FM), and WBOW(AM), Terre Haute, Indiana, since April 1993 (Lie. Ex. 4, p. 1), testified that he saw Rice at the stations only on three or four occasions. He stated that Rice assisted in the installation of a new transmitter and tower for WZZQ(AM), and that on a few other occasions Rice came to oversee the installation of antennas on the FM tower in Terre Haute that Rice personally owned. (Lie. Ex. 4, p. 3.)

52. Cox stated that Rice's involvement in technical and engineering projects for the Licensees' stations was sporadic because he had other matters occupying his time. He resumed his landlord responsibilities in connection with the following properties he personally owned: the land and the building which houses the KBMX main studio, the building which houses the WBOW/WZZQ(AM)-FM main studios and other unrelated tenants, and the FM tower in Terre Haute. He also resumed his position as a technical consultant to Station KTRL, St. Charles, Missouri (unrelated to the Licensees), for which he received a salary. In addition, Rice continued to have regular out-patient psychotherapy and spent a substantial amount of time caring for his elderly parents during this period of time.3 Further, Rice undertook a several-months project of traveling around Illinois and Missouri to at least 10 AM stations (unrelated to the Licensees) which retained him to make certain technical measurements which the FCC required of such stations in 1994. (Lie. Ex. 1, pp. 12-13.)

3 Rice's mother died after a long illness in July 1994. At approximately the same time, his 86 year old father. Malcolm, was incapacitated for a few months with a broken hip. (Lie. Ex. 1, pp. 12-13.)

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Michael Rice's Post-Hospitalization Involvement in Non-Technical Matters

53. Testimony of Janet Cox.4 As discussed earlier, Cox was hired as a bookkeeper with CBI and CMI in July 1982. At that time, CBI owned Station KFMZ, and CMI had recently purchased Stations WBOW and WBOQ(FM) (now WZZQ(AM) and WZZQ-FM, respectively). (Lie. Ex. 1, p. 2.) Over time, Cox was delegated managerial responsibilities and, within approximately two years, became responsible for hiring and training the stations' traffic and sales employees and developing the stations' annual budgets. She-also made presentations of CMI and CBI's business and financial plans to banks to obtain financing, and evaluated the business operations of potential station acquisitions. (Id. at 5.) In 1988, Cox was involved in the start-up of LBI station KBMX. She hired the sales and support staff, established office procedures, negotiated contracts, made presentations to banks for loans, and dealt with all vendors relating to furnishing the station's offices. (Id. at 5-6.) Cox's role hi the day-to-day management of the Licensees and oversight of the radio stations' business operations increased from 1988 to 1991. (Id. at 6.)

54. Pursuant to resolutions of the Licensees' respective Boards of Directors on various dates in 1991, Cox assumed the duties of Chief Executive Officer of CMI and CBI. Further, in consultation with others, Cox was responsible for supervising the managerial, policy decisions, and day-to-day operations of the CMI, CBI and LBI stations. (Lie. Ex. 1, pp. 6-7 and Appx. D, E and F.) Also hi 1991, Cox became the corporate Vice President of CMI, CBI and LBI, the corporate Secretary of CMI and CBI, and was appointed to the Board of Dkectors of CMI and CBI. (Id. at 2-5.)

55. In June 1991, Cox entered into an Employment Agreement with CMI and CBI. (Lie. Ex. 1, p. 9 and Appx. H.) Under this agreement, Cox's initial base salary was $57,500. In addition, inter alia, Cox was entitled to annual cost of living increases; was entitled to an annual bonus of 2 percent of the company's net profits; was to receive health insurance coverage; was entitled to participate in any executive medical plan adopted by the company; was entitled to the use, maintenance and repair of an automobile; was entitled to participate in any company pension plan; was entitled to the unlimited reimbursement of business expenses; and was entitled to four weeks of paid vacation per year. The term of the Employment Agreement was for a period of 10 years and there was provision for the automatic renewal thereof for an. additional five-year period. (Id. at Appx. H, pp. 2-3; Tr. 600.)

56. Cox believed that she earned either $56,000 or $60,000 from the Licensees in 1995. (Tr. 596.) Cox also testified that she has other sources of income (Tr. 592-93), and that if she did not have her employment position with CMI and CBI, she could continue to live hi the style to which she has become accustomed (Tr. 600).

4 See also paragraphs 70, 83, 85, 95, 100, 106, 114, 117, 121, 122, 127, 128, 131, and 135, infra.

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57. Cox's daughter is the general manager of LBI station KBMX (Tr. 592), and that is her only job (Tr. 596). Cox believed that her daughter's salary in 1995 was $25,000 or $26,000. (Tr. 596.) As a full-time employee, her daughter also receives "hospitalization" through the Licensees. (Tr. 601.) Cox's son is the sales manager of CMI's Terre Haute stations (Tr. 592), and that is his only job (Tr. 597). Cox believed that her son earned approximately $40,000 as a sales manager in 1995. (Tr. 597.) Cox's husband's company, in which Cox has a part interest, derives revenue from business it does with the stations. (Tr. 592-93.) Cox estimated such revenue for 1995 as "maybe" $1,000. (Tr. 598.) According to Cox, she, her husband, and her children all have other sources of revenue. (Tr. 592-93, 597.)

58. Cox testified that the only financial matter of the Licensees in which Rice, from time to time, had any involvement was the ministerial co-signing of checks if she or Malcolm Rice, who also had check signing authority, was unavailable to co-sign. (Lie. Ex. 1, p. 12.) However, Rice never issued a check that Cox did not authorize, nor did he ever withhold a signature when she asked him to sign a check. (Tr. 304.)

59. Historically, the Licensees maintained checking accounts requiring two officers' signatures on checks. (Tr. 302-03, 316-17.) Cox personally wanted a two-signature account for her own protection in the event the Rices' relatives ever questioned her check-writing practices. (Tr. 316-17.) In December 1992, LBI's account was converted to a single-signature account. (Bur. Ex. 5, p. 1.) The accounts of CMI and CBI were converted to single-signature accounts on September 28 and 29, 1994, respectively, the two days before Rice's incarceration. (Bur. Ex. 3, pp. 5-9; Bur. Ex. 4.) However, Rice remained one of the individuals authorized to sign checks on the LBI, CMI, and CBI accounts. (Id.; Bur. Ex. 5, p. 1.)

60. In discovery, the Licensees produced a random sampling of checks written on the three Licensees' respective accounts. A total of 504 checks issued between April 1991 and September 1994 were produced. Of those 504 checks, 31 (or 6.15 percent) were signed by Rice. All 31 were two-signature checks. (Bur. Ex. 10; Tr. 193-94; see also Tr. 90-94.)

61. In connection with the Licensees' business operations subsequent to April 1991, Cox testified that Rice did not do any of the Licensees' accounting work (Tr. 330), did not prepare or send out bills (Tr. 331), did not have any responsibility for paying bills except for signing checks as indicated above (id.), did not take out any loans on behalf of the Licensees (Tr. 332- 33), purchased equipment for the stations only at her specific request (Tr. 333-34), and did not determine employees' salaries (Tr. 335). In particular, Rice had no involvement in negotiating the employment contracts or the salaries of Richard Hauschild, general manager of KFMZ since June 1991, and Kenneth Brown. (Tr. 279-81; Lie. Ex. 2, p. 1.) Indeed, Rice had no involvement in the hiring of Brown. (Lie. Ex. 4, p. 1.)

62. Cox, not Rice, negotiated a lease for the Licensees' new corporate headquarters in October 1993. She did so without Rice's input or his knowledge of where the new headquarters would be. Cox testified that Rice only knew that they had to move because the building in which the headquarters office had been located was being sold. (Tr. 275-77.) Cox also

14269


negotiated the lease on behalf of the Licensees in connection with an earlier move of the headquarters, in March 1991, to a building she co-owned with her husband. She did this without Rice's input, but informed him beforehand that she was considering moving the headquarters to one of the buildings she and her husband co-owned. (Tr. 277-79.)

63. Cox testified that she developed updates to the CMI/CBI Employee Policy Manual in 1992 and 1994 without any input from Rice. She negotiated contracts with many vendors who previously dealt with Rice and delegated to the stations' engineers contacts witir certain vendors with whom Rice previously dealt. (Lie. Ex. 1, p. 13.)

64. According to Cox, Rice had no involvement in setting station policy regarding the number of commercials per hour that could run (Tr. 338), did not make sales calls (Tr. 338-39), and did not sign leases or contracts unless a credit application required the corporate president's personal guarantee (Tr. 339-40). Cox also testified that when an equipment supplier required a personal guarantee, she would usually say: "Well if that's the case, there is [sic] 10 other equipment suppliers. Forget them." (Tr. 340.) In addition, Cox testified that Rice did not supervise any personnel (Tr. 336), and did not get involved in personnel and programming decisions (Tr. 228-29). However, Cox further stated that, because Rice was a "student of the [broadcast] industry," he would periodically receive calls initiated by employees, particularly announcers or disc jockeys, seeking advice. (Tr. 336.)

65. Cox testified that Rice was not involved in, and never instructed her to fire an announcer, program director, or general manager, but he "might have said an announcer sounds terrible." (Tr. 216-17.) Her response to such a comment by Rice "probably" would have been: "Well, you get what you pay for." (Tr. 218; see also Tr. 261-62.) Cox did not interpret such a comment by Rice as an order to fire the announcer. (Tr. 262-63.)

66. Cox testified that Rice's only involvement hi the termination of a general manager was in his capacity as a witness to her termination of John Rhea, who worked as the general manager of CMTs Terre Haute stations for approximately one year (December 1991 to December 1992). (Tr. 232-33, 478-79.) The decision to fire Rhea was made by Cox. (Tr. 234-35.) Rice was present because Cox had been advised to have a witness to the termination of an employee, especially one in a management-level position. (Tr. 235-36.)

67. Cox testified that before April 1991 Rice was not a hands-on manager or a hands-on policy maker at the stations, and after April 1991 "[i]t became even less, and even after '91,1 guess you could say I didn't even pay as much attention to the input after that length of time because of all the extenuating circumstances." (Tr. 341.)

68. After Rice's incarceration on September 30, 1994, Cox received communications from him in the form of telephone calls and written notes. There was no set pattern. At first, Cox heard very little from Rice. Later, when his father's health deteriorated, Cox heard from him more often. At the time of her testimony, Cox stated that she received letters from Rice "[m]aybe twice a month." (Tr. 308.) Rice's letters were usually about personal matters. When

14270


they talk, Cox "may mention" to Rice station matters such as the hiring of personnel, advertising, and new equipment purchases. (Tr. 308-09.) Cox has also used Rice as an informational resource, as she would a consulting engineer, if she had questions about particular brands of equipment. (Tr. 230-31.) According to Cox, Rice does not make policy or managerial decisions concerning the day-to-day operations of the stations, and Cox does not seek his input or advice on these matters or take orders or directions from him. (Lie. Ex. 1, p. 14.)5

69. Testimony of Daniel Leatherman. As noted earlier, Leatherman was the general manager of KBMX(FM) from September 1990 to mid-March 1996. (Lie. Ex. 3, p. 1; Tr. 133- 34.) Leatherman testified that no KBMX personnel reported to Rice or were accountable to Rice. Jeff Carr, the program director, ran the programming, and Leatherman ran everything else. All station personnel were accountable to Leatherman and he was accountable solely to Cox. (Tr. 175.)

70. The record contains six memoranda faxed between Rice and Leatherman in April, May, July, and November 1993. (Bur. Exs. 8 and 11.) The first five (April, May, and July), dealt with the following subject matters: the purchase of an outdoor sign for KBMX, die construction of a storage building, the acquisition of a water cooler at KBMX, the repair of the KBMX newsroom telephone, pressure washing the air conditioner condenser units, and construction for the conversion of a shower stall into a storage room in the studio building. (Bur. Ex. 8; Tr. 144-54). Leatherman testified that, in his opinion, the referenced memos did not relate to KBMX's daily broadcast operations, but had to do with Rice's concerns as a landlord with the station's physical plant. (Lie. Ex. 3, p. 2; Tr. 183.) Cox, too, testified that, in her opinion, these memos related to engineering or technical matters, or to landlord concerns. (Tr. 320-33.) In this regard, the physical facilities from which KBMX operated were owned by Rice and he was the landlord of those facilities. (Tr. 321.) Leatherman stated that he did take care of all of the projects which were the subjects of those five memoranda. (Tr. 152.)

71. In the sixth memorandum (November), Rice asked Leatherman and Jeff Carr to let him know if the station needed some sound effects CDs. (Bur. Ex. 11.) Leatherman explained that then LBI shareholder, Dennis Klautzer (also known as Casey Van Alien) (Tr. 135-36, 171) told Rice that KBMX needed more sound effects CDs, and Rice's memo was a follow-up inquiry as to whether that was, in fact, the case (Tr. 155-59). Leatherman testified that he did not say anything to Rice about this memo. (Tr. 160.) Rather, Leatherman responded to Rice's memo by talking to Cox, who told him that they did not need any more music. (Tr. 159-60.) When asked why he responded to Cox, Leatherman stated that he always communicated with her. (Tr. 158.) Leatherman explained that when he was hired as the general manager he had insisted on being answerable to only one person, and it had been agreed that the one person would be Cox. (Tr. 136.) With respect to his responding to Cox rather than to Rice, Leatherman stated: "I'm insisting on what we agreed on when I was first hired." (Tr. 159.)

See, however, paragraph 135, infra.

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72. From the beginning of his tenure with LBI, Leatherman sent sales reports to LBI's headquarters in St. Peters, Missouri. Leatherman never had any discussions with Rice concerning the substance of any such reports, nor did he and Rice have any discussions concerning personnel matters, such as hiring and firing. Leatherman's contacts with LBI management pertaining to personnel matters were exclusively with Cox. He also participated in annual budget meetings with Cox at LBI headquarters. Rice did not attend or otherwise participate in these meetings. Leatherman further testified that there was no change in the manner in which KBMX operated after Rice's conviction or his subsequent incarceration. (Lie. -Ex. 3-; pp. 2^ Tr. 173.)

73. Regarding more specific areas of station operations, Leatherman testified that Rice never availed himself of the station's petty cash (Tr. 168); did not have access to the station books and records which Leatherman kept at KBMX (Tr. 169); never asked to see such records (Tr. 169-70); did not send out bills (Tr. 170); had no involvement in paying ASCAP, SESAC and BMI (Tr. 170-71); never made any loans on behalf of the station (Tr. 171); did not do any sales work (Tr. 179); did not use tradeout arrangements after April 1991 (Tr. 180); had no involvement in establishing the station's rate card (id.); had no involvement in signing or approving sales contracts (Tr. 180-81); and had no involvement in matters regarding federal, state and local taxes,, withholding taxes, or W-2 forms (Tr. 181).

74. Leatherman also testified that Rice had no involvement in dealing with prospective- employees, in hiring or firing station employees, in setting salaries, or in supervising any KBMX personnel. (Tr. 172-73.) When asked by the Presiding Judge whether Rice ever supervised any of Leatherman's activities, Leatherman responded: "Never." (Tr. 173.) Then, when the Presiding Judge suggested that Rice supervised Leatherman "to the extent reflected in the [April, May, July, and November 1993] faxes," Leatherman answered: "Right." (Tr. 174.) Leatherman stated that Rice had no contact with Jeff Carr, the KBMX program director. According to Leatherman: "That was something that was just not done. I would have heard about it, believe me." (Tr. 155.) In addition, although the easy listening format of the station was not changed, it was, in Leathennan's words, "fine tun[ed]." (Tr. 142.) Rice did not participate in that decision or in any discussions relating thereto. (Id.) Leatherman testified that Rice was so uninvolved in managerial, policy, or day-to-day operations at KBMX that some members of the station's staff, particularly part-time employees, did not know he was an owner of the station. (Lie. Ex. 3, p. 2; Tr. 175-77.)

75. Testimony of Richard Hauschild.6 Richard Hauschild has been employed with CBI station KFMZ, Columbia, Missouri, since October 1988, and was promoted to the positions of general manager and sales manager in June 1991. (Lie. Ex. 2, p. 1.) Apart from his positions at the station, Hauschild has no other employment. Except for "small investments," Hauschild has no additional sources of income. (Tr. 634.) Hauschild testified that Rice had no involvement in his promotion, which followed an interview with Cox and Malcolm Rice. Hauschild stated that he has had very minimal contact with Rice since he became employed at KFMZ as an

' See also paragraphs 84, 92, 93, 95, and 97, infra.

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account executive. Specifically, he has had no more than three or four contacts with Rice, all in person, and all limited to general, informal conversation, not station business, operation, or programming matters. (Lie. Ex. 2, pp. 1-2; Tr. 622.) Hauschild also testified that, in April 1991, he attended a staff meeting at which either Cox or Scott Boltz, his predecessor, informed the staff that Rice was no longer going to be involved in the day-to-day operations of the radio station. (Tr. 629-31.)

76. Hauschild further testified that since becoming the general manager-of KFMZ, he has received no letters, memos or other correspondence, or telephone calls from Rice regarding sales, programming, personnel, or any other aspect of station policy, management or daily operations. Likewise, Hauschild has never written a letter or memo to Rice, nor telephoned him to discuss sales, programming, personnel or station management, policy, daily operations or any other matter concerning the station. (Lie. Ex. 2, p. 2.)

77. Hauschild stated that all of his contacts with CBI have been with Cox or her administrative assistants with whom he meets, speaks to by telephone, and communicates with in writing on a regular basis. Hauschild has attended annual budget meetings with Cox at company headquarters in St. Peters, Missouri, in October or November of each year since 1991. These meetings were attended by the KFMZ program director and, on <^casion, the station engineer. Rice never participated hi person, by telephone, or otherwise, in any of these meetings. (Lie. Ex. 2, pp. 2-3.)

78. Testimony of Kenneth Brown. Kenneth Brown, the current general manager of WZZQ(AM), WZZQ(FM), and WBOW(AM), testified that he was hired by Cox in April 1993 without speaking to or meeting with Rice, and that he did not know who Rice was until after he became employed by CMI. Like Hauschild, Brown testified that his contacts with company headquarters have been with Cox and her administrative assistants, and never with Rice. Brown also testified that he has received no letters, memos, or other correspondence, or telephone calls from Rice concerning the stations' sales, programming, personnel, or operations. Similarly, Brown has never written a letter or memo to Rice, or telephoned him for the purpose of discussing such matters. He testified that he regularly speaks by telephone or communicates in writing with Cox and her administrative assistants, but never with Rice. (Lie. Ex. 4, pp. 1-2.)

79. Brown's only face-to-face contacts with Rice were a few casual conversations when Rice came to Terre Haute on matters relating to the FM tower he owns there or to equipment installation. Brown testified that during these conversations, he and Rice had no "in-depth" discussions concerning the day-to-day operations of the Terre Haute stations, and that Rice never gave him any orders or directions concerning such operations. Moreover, Rice has never provided Brown with any programming consultation and, Brown stated, Rice has had no involvement in any hiring or firing of personnel since he (Brown) became the Terre Haute general manager. (Lie. Ex. 4, p. 3.)

80. Brown also attends annual budget meetings with Cox at the Licensees' headquarters, and testified that Rice has not attended or otherwise become involved in any of these meetings.

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Brown stated that he has never spoken with or otherwise consulted Rice on any of the issues addressed at the annual budget meetings. (Lie. Ex. 4, p. 2.)

81. Testimony of Leon Paul Hanks.7 Leon Paul Hanks (also known as Chris Kellogg) began working for CBI's station KFMZ as a "morning show personality" in August 1985, and was promoted to the position of program director in February 1989. (Tr. 360, 362.) In late 1991 or early 1992, after Rice was released from the hospital, Hanks was given the responsibility of assisting with the programming of the other CMI/CBI stations as group program director. (Tr. 362, 370; see also Tr. 256, 495.) In that capacity, Hanks was responsible for the programming of KFMZ and assisted the various program directors at WZZQ. He also critiqued both stations' on-air talent and was involved in recruiting talent for WZZQ and LBI. (Tr. 367-68.)

82. Hanks was terminated on August 5, 1994, by KFMZ general manager Richard Hauschild and Hanks subsequently filed a discrimination lawsuit against CMI for wrongful termination, which is pending. (Tr. 362-64, 427-28, 431, 434, 614.) Hanks, who has epilepsy, contended that "there was no foundation for termination except my health problem." (Tr. 364.) When asked whether he believed his termination by CMI was fan- or unfair, he responded: "[M]y thought processes are saying I think it was inappropriate. Therefore, if it was inappropriate, the answer would have to be that it was unfair." (Tr. 434; see also Tr. 431-34.)

83. Cox testified that the decision to have the program directors of WZZQ consult with Hanks was made by her, not by Rice. (Tr. 259; see also Tr. 619-22.) According to Cox, Hanks was not terminated because of his health problems but because he did not do his job. (Tr. 342.) Cox testified that Hanks had been given an opportunity to take a medical leave of absence to "get bis medicine squared away, get his life together." (Tr. 312.) According to Cox, Hanks was not following his doctor's advice. Instead of taking the medical leave that was offered, Hanks took a vacation and, when he returned, Cox stated, his performance was worse than it had been before. Eventually, Hauschild fired Hanks with Cox's concurrence. (Tr. 312-313, 588, 614.)

84. Hauschild described Hanks as "very prideful." (Tr. 614.) During the time they worked together, Hanks "did not take criticism very well [and rjeacted pretty negatively to most criticism." (Tr. 615.) As Hauschild put it, Hanks' firing was "the ultimate criticism." (Id.) Hauschild further testified that he attended a deposition of Hanks taken in his discrimination case against CBI. According to Hauschild, Hanks was asked off the record what he really wanted out of the case and Hanks, who was very agitated at the time, stated that he wanted "to get the station, the company, Mike Rice, and everything the law is going to allow me." (Tr. 615.) In the instant proceeding, Hanks vehemently denied making the off-the-record statements attributed

7 See also paragraphs 118-20, 123-25, and 129, infra.

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to him,8 although he did admit stating on the record at his deposition that he was going to get "[a]ll that the law will allow in my particular case." (Tr. 460-61.)

85. Since November 1, 1994, Hanks has been employed as the program director of another Columbia, Missouri, radio station. (Tr. 361.) According to Cox, this station is a direct competitor of KFMZ (Tr. 552) in that it targets the same audience demographics (18 to 34-year- olds) but with a different format (Tr. 583-85).

86. Hanks testified that, after Rice's release from the hospital, Rice was involved in programming and personnel decisions at the Terre Haute stations. Hanks testified that Rice had listened to WZZQ and believed that the station had strayed from "the central focus of its format." Hanks stated that Rice asked him to listen to the station and then to plan a visit to the station to go through its music. (Tr. 370.) This was the first time that Hanks acted in his capacity as group program director. (Tr. 371.)

87. According to Hanks, his primary job as group programming director was to keep the programming format of KFMZ and WZZQ consistent with what Rice expected. (Tr. 367-68.) Hanks testified that as group program director, he reported directly to Rice. (Tr. 371.) The reports were "overall regular update[s] on how things were going with the station." (Tr. 372-73.) In the beginning, Hanks stated, he had frequent, once or twice a week, telephone conversations with Rice. (Tr. 371-72.) In 1993, when WZZQ was "on track," Hanks and Rice spoke less frequently. (Tr. 371.) During their conversations, he and Rice discussed any possible problems they were having with the program director at the Terre Haute station and whether the new songs that had been added to the playlist were consistent with the station's format. If Rice heard something on the air he did not like, he would let Hanks know about it and expect him to take care of it. (Tr. 372-73.) Hanks also sent to Rice copies of memos he (Hanks) sent to the program directors. However, Hanks, on his own initiative, did not indicate on the memos that copies had been sent to Rice because he "didn't think the program director there needed to know that Mike [Rice] was on top of things." (Tr. 371-72, 435-36.)

88. Hanks testified that, after April 1991, Rice regularly checked KFMZ and WZZQ's new song reports in the trade publication Radio & Records ("R&R"). On several occasions Rice called Hanks to complain that the stations were adding too many new songs. According to Hanks, it was Rice's philosophy that if a station played too many new songs, then it was not playing enough of the old, familiar classics. In the spring of 1992, when WZZQ added 10 new records in one week, Rice called Hanks and wanted to know why. According to Hanks, neither Cox nor Malcolm Rice ever reviewed the stations' playlists. (Tr. 376-77.)

8 The Presiding Judge notes that, in responding to the pertinent questions (see Tr. 460-61), Hanks became very impassioned and angry, his voice rose in denial, and his face reddened. Hanks appeared to be genuinely and extremely offended by the suggestion that he wanted to "get Mike Rice" or "get his stations." Based upon the observation of Hanks' demeanor, the Presiding Judge will fully credit his denial.

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89. Hanks further testified that, after Rice's release from the hospital, Rice was involved in the hiring, and/or firing or replacement of several station employees. These included Janice Pratt (Tr. 398-99,403), Bob Kinneson (Tr. 400), Scan Madden (Tr. 409), Jeff Davis (Tr. 412-13), Ben Jacobs (Tr. 415-16), Mike Steel,9 Mark Savage, 10 and John Rhea. 11 Rice also approved moving Jacobs to the position of WZZQ program director. (Tr. 413-14; see also Tr. 371.)

90. Hanks stated that, in May or June 1992 (Tr. 399), Rice directed him to replace Janice Pratt, an announcer who worked the overnight shift (Tn 397-98, 403). Rice thought Pratt "screeches or squawks" on the air and was hurting the station's overnight ratings. (Tr. 398.) He wanted Hanks to "let her go," to "get rid of her." (Tr. 398-99, 403.) There was no question in Hanks' mind that he had to do so; it was his job. (Tr. 399.)

91. Hanks began to look for a replacement and started talking to the station's Saturday night announcer, Bob Kinneson, about his taking over Pratt's position. However, a few weeks later, Rice called and instructed him "to get rid of Kinneson because he was bringing down the Saturday night ratings. (Tr. 400.) Hanks did not fire Kinneson because Kinneson resigned to work for another station. Hanks still had to replace Pratt, but he did not feel it was appropriate to tell her she was being fired because she "screeched" on the air. (Tr. 400-01.) Hanks eventually fired Prati- for repeatedly coming to work late. After he let her go, Rice told Hanks that he should have done that a long time ago. (Tr. 402.) If the decision were Hanks' to make, had Rice not told him to fire her, Hanks would not have let Pratt go. (Tr. 402-03, 463.)

92. Hauschiid testified that, about six months before Pratt was dismissed, he told Hanks that Pratt should either be dismissed or correct her problems. Hauschiid stated that Pratt was not only late for work, but did not perform certain required tasks on the overnight shift, and had guests in the studio contrary to station policy. (Tr. 605-06.) According to Hauschiid, Rice never told him to get rid of Pratt, and Hanks never told him that Rice directed him to fire Pratt or that Rice had criticized Pratt's on-air voice. (Tr. 606-07.) However, Hauschiid admitted that he had no way of knowing whether Rice told Hanks to do something, and Hauschiid stated that he was not privy to all of the conversations between Hanks and Rice. (Tr. 632-33.)

93. With respect to Kinneson, Hauschiid testified that Hanks fired Kinneson at Hauschiid's suggestion because Kinneson was not following or adapting to the format. According to Hauschiid, Kinneson "was trying to turn a music station into a talk station." (Tr. 608-09.) Hauschiid stated that Rice never made any comments to him about Kinneson's performance, nor did Hanks ever tell him that Rice wanted Kinneson fired. To the best of Hauschiid's knowledge, Rice had no involvement in the firing of Kinneson. (Tr. 609.) However,

9 See paragraphs 118-22, infra.



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Hauschild admitted that he did not know whether Hanks spoke with Rice about Kinneson's termination. (Tr. 626.)

94. According to Hanks, Rice told him several times that he was not happy with KFMZ announcer Scan Madden. Hanks testified that although Rice did not like the way Madden sounded on the air, it was not so much his on-air performance that Rice did not like as it was Madden's "aloof attitude. At the company's 1992 Christmas party, Rice informed Hanks that Madden "needed to be let go." (Tr. 408-09.) Hanks found Madden "difficult to get along with" and did not really care if Madden was fired. (Tr. 411.) However, Madden was the boyfriend of another announcer, Sally Chase, and Hanks was concerned that if he fired Madden, Chase, whom he wanted to keep, would resign. Hanks called Cox for her advice and she advised him to start looking for replacements for both Madden and Chase. (Tr. 410-11; see also Tr. 253-54.) Before Hanks could fire Madden, however, Madden quit to take a job in Detroit. (Tr. 411.)

95. Both Hauschild and Cox testified that Rice never made any critical comments to them about Madden's performance on the air. (Tr. 578, 610.) According to Hauschild, Hanks never told him that Rice did not like Madden's sound or on-air personality. (Tr. 610.) Rather, Cox testified that Hanks made critical remarks to her about Madden, and that Hanks wanted to fire Madien because, Cox thought, he saw Madden as a threat to him from a talent standpoint. (Tr. 578-79.) As noted above, Madden was never fired; he quit to take a job elsewhere. Hauschild testified that Madden left after he had been moved from the morning to the evening shift following an Arbitron study and a station-conducted survey. Hauschild testified that Madden viewed the move as a demotion. (Tr. 610-11; see also Tr. 627-28.)

96. Hanks testified that, in August 1993, Rice told him to "get a replacement" for Jeff Davis (also known as Jeff Presley) who worked evenings at KFMZ. Hanks stated that Rice thought that Davis was too old for the nighttime position. (Tr. 412-13.) Hanks had worked with Davis for many years, was friendly with him, and did not want to let him go. Hanks stated that he met with Davis privately and told him that Rice did not want him on the air at night any longer. He also told Davis tfiat he had no other position for him and that he would have to let him go. They agreed on a date by which Davis would leave. Hanks testified that he did not agree with Rice's decision to fire Davis and that it was "pretty painful." (Tr. 413, 448.)

97. Hauschild testified that Davis had previously worked for the station as a full-time, mid-day announcer. He left for another job, which he lost, and subsequently asked to come back to KFMZ. The only available time slot was the seven to midnight shift, which he reluctantly took. Hauschild testified that Davis often shared with him that he was "fairly discontent." Davis and his wife were making plans to move to her home town in Kentucky, they had a new baby, and his wife did not like the fact that he was not around every evening. At that time a previous employee of the station who Hauschild knew expressed an interest in coming back to KFMZ. Consequently, Hauschild and Hanks jointly met with Davis who was "relieved of his responsibilities." According to Hauschild, Davis was told that a previous employee was interested in returning and, since Davis had expressed some dissatisfaction with the job and may be leaving shortly, they "no longer need[ed] bis services." Hauschild agreed with Hanks that it

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was an "amiable parting." (Tr. 612-13, 625.) Hauschild stated that Hanks did not refer to Rice's feelings about Davis in the meeting. Hauschild also testified that Hanks never told him that Rice wanted Davis fired. (Tr. 612.) Nor did Hauschild ever discuss with Rice the issue of Davis' age. (Tr. 612, 614.) However, Hauschild admitted that he did not know whether Rice directed Hanks to fire Davis. (Tr. 612.)

98. Ben Jacobs (also known as Ben Orzeske) started at KFMZ working at night. According to Hanks, in November 1992, he suggested to Rice moving Jacobs to WZZQ as program director. Rice wanted to think about it and, after a week or so, he told Hanks he thought the move "would work." (Tr. 413-14; see also Tr. 371.) In addition, Hanks recalled that, during a flight to Chicago on company business, Jacobs asked Rice about moving some staff members around. Rice thought that it sounded like a good idea. When Jacobs returned to WZZQ he made the personnel changes. (Tr. 414-15.)

99. Hanks stated that when Rice learned that the changes had been made, he (Rice) felt betrayed by Jacobs who had acted on what Rice considered to be "casual conversation." Rice told Hanks that he "take[s] that kind of thing personally." (Tr. 415.) After that, Hanks testified, Rice would not give Jacobs a break on "any little mistake" that he made. (Id.) Rice told Hanks: "Your boy has got to go." (Tr. 416.) Rice referred to Jacobs in this manner because Hanks was the one who got Jacobs to WZZQ. Within a week or two after their conversation Jacobs was fired. Hanks was not the one who fired Jacobs, and did not know who actually did fire him. (Id.) Nor did Hanks know the reason why Jacobs was ultimately fired. (Tr. 448-49.)

100. Cox testified that Jacobs was fired by Kenneth Brown, who told her that the job of program director was overwhelming Jacobs, and that Jacobs was not ready for all the responsibilities of that job. (Tr. 575-76.) According to Cox, Rice never suggested to her or directed her to fire Jacobs (Tr. 260, 593), Rice did not tell her that he was ordering the firing of Jacobs (Tr. 260), and Rice did not tell her that Jacobs "had to go" (Tr. 575). However, Cox admitted that she did not know what Rice may have said to anyone else about this matter. (Tr. 593.)

101. Hanks stated that when Rice gave him suggestions or directions about programming or personnel, he felt compelled to obey those instructions. As far as Hanks was concerned, Rice was bis boss, that is, he "was the owner of the station, and there was no doubt that whatever he said is what went final, period, that's it, it's done." (Tr. 417-18.) Although Hanks remembered the meeting at which Cox informed the staff that the Board of Directors had appointed her Chief Executive Officer, he did not recall her stating at the meeting that Rice had been excluded from the day-to-day operation and control of the station. (Tr. 396.)

102. Hanks initially testified that "[ojnce [Rice] made up his mind, it was made up ... [b]ecause it had never been changed before." (Tr. 404; see also Tr. 417.) However, Hanks later admitted that this testimony was not entirely true (Tr. 439), and that it was "a little over dramatic" (Tr. 463). Hanks then altered his testimony by stating that "it was a very difficult thing to change [Rice's] mind" (Tr. 463-64; see also Tr. 471), and that Rice "occasionally"

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changed his mind (Tr. 472). Hanks testified that, being a disk jockey, he "can have the tendency to exaggerate," and he admitted that he "exaggerate[d] the statement about Mike Rice's change of mind." (Tr. 471; see also Tr. 463-64.) Hanks further testified: "Regarding the other statements that have been made [by him at the hearing], I do not believe that I have exaggerated anything. I have tried to answer [the questions] as honestly and straightforward [sic] as possible." (Id.)

103. Testimony of John Rhea. 12 John Rhea served as the general manager of CMI stations WBOW(AM) and WZZQ(FM), Terre Haute, Indiana, beginning on December 30, 1991. He was terminated on December 16, 1992. (Tr. 478-79.) As general manager, his duties were to run the sales department and oversee the general operation of the radio stations. His duties did not include oversight of the programming of the stations. That was the responsibility of Hanks, the CMI/CBI group program director, who was located in Columbia, Missouri. (Tr. 479- 80.)

104. Rhea was hired by Cox for the general manager position. (Tr. 479.) During the hiring process, Rhea testified, Cox "alluded to the fact" that she had taken over as the chief operating officer of the company, that the stations were owned by an absentee owner, that the man's name was Mike Rice, and that Rio; had been ill. (Tr. 481-82.) Rhea stated that Cox did not, at that time, tell him the nature of Rice's illness. (Tr. 482.)

105. Rhea also testified that, at the time of his hiring, Cox never told him about Rice's "situation," i.e., that Rice was under indictment for "child molestation." (Tr. 498-99.) Rhea stated that he was upset when he first learned about Rice's indictment from a salesman approximately six weeks after he (Rhea) was hired. Rhea stated that he would not have taken the general manager position had he known about the indictment "on the front end" because he had maneuverability and other job options at the time. (Tr. 498-99.)

106. Cox disputed Rhea's version of the hiring process. According to Cox, she did inform Rhea about Rice's indictment when she hired him, and told him that some employees might resign as a result. She stated that Rhea voiced no reservation about taking the position at all, and that Rhea pursued her for the position because he was then out of a job. (Tr. 576-78.)

107. During the time that Rhea worked for CMI as general manager, he assumed that because Rice owned the stations "[h]e was the boss." (Tr. 501.) However, Rhea also testified that during his tenure with CMI, in his mind, Rice remained an absentee owner. (Tr. 506-07.) Rhea stated that the first time he learned that Rice was to have been insulated from station management was when he talked to Bureau counsel about a month and a half before testifying in this proceeding. (Tr. 502.) Rhea stated that he was not informed by Cox that Rice had been excluded from the management of the stations. (Tr. 499.)

12 See also paragraphs 118-20, 123, 126, 130, and 131, infra.

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108. At the time of his termination from CMI, Rhea had worked for approximately 20 years in various general manager positions. (Tr. 523.) He testified that his termination was a career setback for him, and that he had animosity toward Cox at the time he was terminated. (Tr. 523-24.) Rhea testified that he was informed that a reason for his termination was that the numbers for WBOW were not what they should have been, but he felt that, "[t]o a certain degree," the negative publicity concerning Rice's "situation" contributed to the station's numbers decreasing. Rhea testified that "if [he] want[ed] to blame someone" for his termination, he would blame Rice "a little bit." (Tr. 521-22.)

109. When asked generally whether there were any complaints lodged against him by station personnel during his tenure at WBOW and WZZQ, Rhea responded: "Not really." Then, when asked specifically whether he had been accused of "some unauthorized contact with some of the female employees," Rhea responded: "I was. I was." (Tr. 515.) He explained, however, that the accusations had no factual basis (Tr. 527), that he did not agree with the accusations, and that he had felt wrongfully accused (Tr. 516). Cox was the individual who brought the accusations to Rhea's attention. (Tr. 517, 527-29.) The allegations against Rhea were not submitted formally to the stations in writing, no lawsuit was ever filed in connection with the allegations, and no criminal charges were ever brought against Rhea with respect to the accusations. (Tr. 527.) The complaints were made in late April 1992 and Rhea continued his employment with CMI until the middle of December 1992. (Tr. 529.) At the time of Rhea's termination, neither Cox nor Rice mentioned the complaints, and Rhea did not think he was fired because of the complaints. (Tr. 531.)

110. Rhea is no longer a station general manager and is now a senior sales representative for a station in the Memphis, Tennessee, market. (Tr. 476.) He explained this change in his career as a result of the diminished need for radio station general managers around the country caused by the FCC allowing duopolies, i.e., multiple ownership of radio stations hi the same market. (Tr. 530.)

111. Rhea testified that, during the time he was the general manager of the Terre Haute stations, Rice was involved in programming and personnel decisions at the stations. 13 With respect to programming, Rhea testified that approximately six weeks after he became the general manager, Rice "popped in" and took him to lunch. At the end of their conversation, Rhea stated, Rice told him he was not too happy with the musical sound of WBOW. Rice asked Rhea for his opinion about what he thought should be done. Rhea described the meeting as "no big deal. Very cordial." (Tr. 482-83, 509.) A month or so later, Rice and Rhea had another lunch at which there were further discussions about the programming of WBOW. (Tr. 483, 509.)

13 In addition, Rice owned the building in which the Terre Haute radio stations were located. At Rice's direction, Rhea showed portions of this building to prospective tenants. Rice also made Rhea responsible for ensuring that the building was cleaned up. (Tr. 501.)

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112. According to Rhea, sometime later, Rice asked him to obtain information about the cost of the Satellite Music Network. After doing so and sending the information to Cox, Rhea stated that he received a call from her informing him that the satellite music service was too expensive. (Tr. 502-03, 525.) Rhea testified that Cox told him that Rice thought the station could be programmed "cheaper" by bringing in his (Rice's) own music. (Tr. 502-03.) In this connection, Rhea testified that he had also spoken to Rice about this matter. (Tr. 526.) Rhea conceded, however, that notwithstanding what Rice's views were concerning the Satellite Music Network, he (Rhea) had no reason to believe that Cox did not make her own accounting assessment as to the fact that it was too costly. (Tr. 526.)

113. Rhea further testified that Rice was involved in the decisions to hire and/or fire several station employees including Chip Ramsey (Tr. 486-87), Steve Holler (Tr. 488-90), Mike Steel, 14 and Mark Savage. 15 Rhea testified that Ramsey was already working as the program director of WBOW when he became the general manager of the station. Rhea stated that Rice told him that Ramsey had worked for him before, that he did not like him then, and that he still did not like him. Rhea concluded from Rice's statement that Ramsey's job was on the line. (Tr. 483-84, 486.) Rhea testified that at the conclusion of the college baseball season he received instructions from Cox to fire Ramsey. (Tr. 487, 510-11.) Ramsey could not be fired earlier because of a contract the station had with Indiana State University which c?lied for Ramsey to do the play-by-play of their baseball games. (Tr. 486.) Rhea testified that he laiew Ramsey was going to be fired and that it was "just a matter of waiting until the baseball season was over." (Tr. 487.) Rhea also testified that he "knew how Mike [Rice] felt about him [Ramsey], that Mike wanted him out of there." (Id.) Rhea fired Ramsey as he was instructed to do. (Tr. 510-11.)

114. According to Cox, although Rice did not like Ramsey, Rice neither directed her to fire Ramsey nor suggested that he be fired. (Tr. 573.) Cox stated that she did not discuss the firing with Rice before she ordered Ramsey terminated. (Tr. 591.) Cox testified that she directed the firing of Ramsey because there had been a change in the WBOW format that Ramsey was not happy about, and his attitude was reflected in his work. Cox denied that her decision to have Ramsey fired was affected by Rice's dislike for him. (Tr. 573.)

115. Steve Holler was an announcer for WBOW. He was the son of the station's office manager. He had been living in Florida and wanted to return to Indiana. He had "some small amount of experience as a jock . . . [but it was known that he] was a rookie." (Tr. 487-88.) Rhea stated that he decided to employ Holler after speaking with Cox and determining that there would be no problem in doing so. (Tr. 488.)



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116. In the summer of 1992 (Tr. 489), on the first day Holler was on the air, Rice was coincidentally working at the AM transmitter site and had heard Holler's on-air performance. Rhea testified that Rice telephoned him and said: "I want him off the radio. He isn't worth a damn. Get him off the radio." (Tr. 488.) Rhea stated that he was "really upset" about this because it was Holler's first day on the job and, Rhea felt, he should have been given a chance. (Id.) Rice later came to the station and Rhea "confronted him." Rhea told Rice: "You're not giving him a chance. He just started." (Tr. 489.) According to Rhea, Rice responded: "I don't give a damn. Get him off the station." (Id.) Later that day Cox called Rhea and told him to "[g]et rid of Holler. (Id.) Cox subsequently sent the appropriate paper work and Rhea fired Holler. (Tr. 489-90.)

117. According to Cox, she did not want to hire Holler because, if he had problems, there was the potential for losing his mother, who was an excellent employee. (Tr. 574.) Cox further testified that Rhea never wanted to hire Holler in the first place because his mother worked for the station but Rhea "didn't have the guts not to hire him nor to really say you're not good, I'm going to fire you." (Tr. 248.) Cox also testified that Rhea was not opposed to firing Holler, that it was Rhea who ultimately decided to fire him, and that Rhea told her he was going to fire Holler. Cox did not know whether Rice had instructed Rhea to fire Holler. (Tr. 248-49.)

118. Testimony Relating to the Employment of Mike Steel. Mike Steel was the program director of WZZQ for about two or three months beginning in February or March 1992. (Tr. 263-64, 405, 484.) According to Rhea and Hanks, Rice was involved in the hiring and firing of Steel. 16

119. In February 1992, WZZQ's program director resigned. (Tr. 555.) Subsequently, Rhea testified, at a luncheon meeting, Rice told Rhea that he (Rice) knew an announcer whom he thought they might be able to get for the WZZQ program director position. The announcer was Steel. (Tr. 483-84, 509-10.) Hanks also testified that Rice discussed hiring Steel with him. Hanks stated that Rice told him that he had heard Steel on a radio station in Warrenton, Missouri, that Rice said he had gotten in touch with Steel, and that the two had met and talked and discussed programming philosophies. Hanks could not recall whether Steel initiated the contact with Rice, or whether Rice initiated the contact with Steel. Hanks stated that Rice "really liked" Steel's "concept of promotions" and the fact that Steel came from a Top 40 background. Hanks testified that Rice told him that he had asked Steel to come to work in Terre Haute and be a program director there. According to Hanks, Rice said that Cox would take care of the hiring. (Tr. 405-06.) Rhea testified that, some time after the lunch meeting with Rice, he (Rhea) received a call from Cox telling him to find a motel room for Steel, who was coming to work for the station. (Tr. 484, 510.) Cox did not tell Rhea during that call that Steel was being hired at Rice's direction. (Tr. 510.)

16 Both Hanks and Rhea testified that they had not seen or spoken to each other since they left the Licensees' employment. (Tr. 472, 505-06.) Each was subpoenaed to appear and testify at the hearing. (Tr. 361, 475.)

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120. During the time Steel was employed at WZZQ, he changed the station's reporting status in the trade publication R&R from Album Oriented Rock (AOR) to Top 40. (Tr. 406-07.) According to Hanks, Rice was "furious" at Steel for making this change and, in a telephone conversation, told Hanks that he (Rice) wanted Steel "gone immediately." (Tr. 407.) Rhea, too, testified that Rice was "livid" and "went ballistic" over the status change. (Tr. 485.) Rhea further stated that Cox told him that Rice wanted Steel "out of there immediately." (Id.) Both Hanks and Rhea testified that Cox also had a strong negative reaction to, and was upset by, the change Steel had made. (Tr. 444-45, 511-12.) Rhea testified that he fired Steel at the instruction of Cox (Tr. 485, 511, 512) and Rice (Tr. 511). According to Rhea, Cox "overnighted" Steel's termination papers and check to him (Rhea). (Tr. 485.)

121. The testimony of Cox relating to the employment of Steel differed from that of Hanks and Rhea. Cox stated that she learned about Steel from another announcer. The station where Steel worked was going "digital," and a lot of employees were being let go. She had heard Steel on the air and asked Rice if he knew Steel because Rice knew a lot of people in the broadcast industry. Rice was familiar with Steel's name. (Tr. 263.) Cox did not recall precisely how she contacted Steel, but she did recall bis dropping off his resume at her office. Cox stated that she then called Steel in for an interview and decided to hire him. (Tr. 264.) She also testified that Rice did not direct her to hire Steel, nor did she get Rice's approval to hire Steel. (Tr. 555.) However, Cox admitted that she did not know, and would have no way of knowing, whether Rice had any conversations with others at WZZQ regarding the hiring of Steel. (Tr. 586.) 17

122. Cox testified that after she learned about the R&R reporting change, she telephoned Rhea and asked: "[W]hat the hell is going on here?" (Tr. 265.) She stated that in her conversation with Rhea, she told him she was "extremely upset" about the reporting change, and Rhea told her that he did not think "it was that big of a deal, but that he would take care of it." (Tr. 568-69.) Cox assumed that by talcing care of it, Rhea meant that he would reverse the reporting change. (Tr. 569.) Cox further testified that she did not instruct Rhea to fire Steel. On the contrary, Cox stated that Steel was not fired; he resigned. (Tr. 560.) 18

11 Similarly, Cox testified that Hanks and Rice were social friends, and that Hanks, among other things, visited Rice's home. (Tr. 550,580.) When asked whether there could have been a business reason for Hanks' visit(s), Cox responded: "No ..." (Tr. 580.) However, Cox admitted that she was not present when Hanks visited Rice's home, that she did not know what they discussed, and that she was speculating that the discussion was social. Further, Cox testified that, after April 1991, Hanks and Rice had telephone conversations, and that some of them may have taken place after hours. Cox admitted that she did "not always" know what was discussed in these after-hours telephone conversations. (Tr. 581-82.) Moreover, Cox testified that, although the Licensees had no policy requiring new hires of on-air personalities to be cleared with Rice, she did not know whether Hanks in fact cleared such new employees with Rice before hiring them. (Tr. 552, 599.) In this regard, Cox stated that Hanks "very well could have" cleared new hires with Rice because he (Hanks) was very indecisive. (Tr. 599-600.)

18 In its reply findings and conclusions, the Bureau requests that Cox's testimony that Steel resigned be stricken. For the reasons stated on the record at Tr. 639, the Bureau's request is denied.

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123. Testimony Relating to the Termination of Mark Savage. Mark Savage (also known as Mike Bianchi) was the program director of WZZQ from April to November 1992, at which time he was fired. Savage was hired by Rhea, who considered him an "excellent" employee. (Tr. 490-91, 569.) According to Rhea and Hanks, Rice was involved in the firing of Savage.

124. Hanks testified that in late October or early November 1992, he, Rice, and Cox drove to Terre Haute from St. Peters, Missouri, for the express purpose of firing Savage. According to Hanks, Savage was not doing well in maintaining the station's format. Every time Hanks would "tweak [or] fine tune" WZZQ's format, Savage "would start veering back off focus again." (Tr. 378-81.) Hanks stated that Rice complained to him about this and told him that he (Rice) had decided that it was time to get rid of Savage. When Rice told him this, Hanks asked if he should "start a search" for a replacement. According to Hanks, Rice replied: "Yeah, I'll do a little looking around too." (Tr. 380-81.)

125. Hanks testified that when they reached Terre Haute, he, Rice, and Cox met in Rhea's office. Hanks stated that he, Rice, and Rhea stayed in Rhea's office and talked while Cox, alone, went downstairs to Savage's office to fire him. (Tr. 382.) According to Hanks, during the conversation in Rhea's office, when Cox was out of the room, Rice, referring to the firing of Savage, said: "You know, I can't do that anymore. Janet [Cox] has to do that." (Tr. 383; see also Tr. 378-79, 386.)

126. Rhea recalled the events in question differently. Rhea testified that Rice and Cox came to Terre Haute together to fire Savage. He was not sure whether Hanks also came at that time. Rhea stated that he, Cox, and Rice met in an office Rice maintained in the building, and that Rice said to him: "You and Janet [Cox] go down there and get him [Savage] out of here." (Tr. 493.) According to Rhea, he and Cox then fired Savage. "[Rhea] spoke the words and [Cox] passed out the paper work." (Tr. 493-94.) After Savage was fired, Rhea testified, he told Rice that he was not happy about it and Rice, who was "gloating," replied that firing Savage "ought to give you [Rhea] a sense of power." (Tr. 494.)

127. Cox testified that she drove to Terre Haute to terminate Savage and that she had his severance pay check with her. According to Cox, neither Rice nor Hanks accompanied her on this trip. (Tr. 238-40.) At one point, Cox testified that it was Rhea's idea to fire Savage. (Tr. 239.) At another point, however, Cox testified that she thought it was Hanks who wanted Savage fired because "[h]e was difficult to get along with." (Tr. 570.) Cox was of the opinion that Hanks felt threatened by Savage because Savage "was maybe more talented than [Hanks] was . . . [and that Hanks] never wanted to have anybody who was a better talent than he was." (Tr. 570-71.) Cox stated that she learned from Savage, Hanks, and Rhea that there were conflicts between Savage and Hanks. Cox testified that Savage resented the input of Hanks because Savage felt he was more qualified than Hanks since he (Savage) had worked in larger markets and with more consultants. (Tr. 571-72.) Further, according to Cox, earlier on in his tenure at WZZQ, Savage resigned, only to "rescind[ ]" his resignation later. (Tr. 572; see also Tr. 589-90.)

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128. Cox testified that Rice neither directed her to fire Savage nor told her that he wanted Savage fired. (Tr. 570.) Cox stated that Savage was fired for "multiple" reasons. Not only was Savage having problems following the format, but he also had personal problems which kept him from working longer than a 40-hour week, which was required for a program director. In addition, because of some of the changes in the format, Cox stated that she was concerned that "improper things . . . were going on." (Tr. 571.)

129. Testimony Relating to the Termination of John Rhea; Hanks testified that after the firing of Savage, he drove Rice and Cox back to St. Peters, Missouri. Hanks stated that while he was driving, he overheard Rice tell Cox that he was not pleased with Rhea's lack of motivation of the sales staff who, Rice thought, "were a couple of losers." (Tr. 386-87.) Rice told Cox: "[Y]our guy has got to go." (Tr. 387.) Hanks understood that by "your guy" Rice was referring to Rhea and to the fact that Cox had recruited and hired him. (Id.) Hanks stated that be felt "weird," "strange," and "uncomfortable" listening to this conversation, but he was in a position where he could not help but hear everything that was going on. (Tr. 387-88.) Hanks believed that Rice noticed his discomfort because Rice said to him: "Oh, we have these little meetings all the time," or words of a similar nature. (Tr. 388; see also Tr. 390.)

130. Subsequently, on December 16, 1992 (Tr. 478), Rice and Cox returned to Terre Haute entered Rhea's office and sat down. According to Rhea, he asked them: "Who are we all taking out today? Who are you all shooting today?" Rice replied: "You." Rhea then asked why and Rice replied: "Change in direction." (Tr. 496.) After Rice left the room, Rhea asked Cox why he was being let go. According to Rhea, Cox told him it was because of Rice's displeasure with WBOW's financial figures. (Tr. 497.)

131. Cox testified that it was her decision to fire Rhea. She made this decision, she stated, because the station was not performing up to her expectations, there were both revenue and personnel problems (Tr. 234), Rhea told her "numerous things . . . that were not true" (Tr. 249), and his references had not told the truth when she called them (Tr. 238). Cox further testified that Rice accompanied her on this trip to Terre Haute in order to be a witness to Rhea's firing. In this connection, Cox stated that it was recommended to her that there always be two individuals present at the termination of an employee, especially one in a management position. (Tr. 232, 235-37, 335.) Rhea agreed that it was "probably" better to have a third-party witness to an employee's termination. (Tr. 524-25.) Cox did not know if Rice did or did not make a statement to Hanks, during one of the trips Hanks, Cox and Rice made to Terre Haute, about Rice having "meetings" with her. Cox did not pay attention to their conversations at all times. (Tr. 241-42.)

132. Letters Written by Michael Rice. The record in this proceeding contains four letters written by Rice relating to the Licensees. (Bur. Ex. 1, pp. 24, 26, 30; Bur. Ex. 9.) The first letter was addressed to Dale A. Palmer, KZZT Radio, Moberly, Missouri, was written on "Contemporary Media Broadcasting Group" letterhead, and was dated April 29, 1993. (Bur. Ex. 1, p. 24.) Therein, Rice stated that he was "[fjollowing up" on Palmer's telephone calls to Cox.

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Rice informed Palmer that "we do not want to sell the bare CP. [sic] for the Huntsville, MO. station." Rice also stated:

We have had three other bona fide inquiries to purchase the station after it is built. . . .

However, with the quickly changing industry, we are always interested in business arrangements that are mutually beneficial to all concerned.

Soon, we will begin our plans to construct KTDI and locate our main studio location in Moberly, and a second studio at Macon, Mo.

If you or your associates would be interested in purchasing the station once it is built and on the air, or have some other arrangements in mind, feel free to contact us.

If you have any further thoughts or ideas, please let me or Janet [Cox] know.

(Id.)

133. The second letter was addressed to Jerrell A. Shepherd, KRES Radio, Moberly, Missouri, was written on "Contemporary Media Broadcasting Group" letterhead, and was also dated April 29, 1993. (Bur. Ex. 1, p. 26.) Therein, Rice stated that he was "[fjollowing up" on Shepherd's telephone call to him. Again, Rice stated that "we do not want to sell the CP. [sic] for the Huntsville, MO. station." Rice also wrote:

Contemporary Broadcasting, Inc. does not have the CP for sale, as was told to you by [a] Broker/equipment salesman ....

We have had three other bona fide inquiries to purchase the station after it is built. . . .

However, with the quickly changing industry, we are always interested in business arrangements that are mutually beneficial to all concerned. This is why / suggested you consider a swap of the Lebanon, Mo. property for the Huntsville, Mo. property.

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If you have any further thoughts or ideas, please let me know.

(Id., underlining in original, italics added.)

134. The third letter was addressed to Shepherd, was written on a "Contemporary Media Broadcasting Group" Fax Line Transmittal Sheet, and was dated August 3, 1994. (Bur. Ex. 1, p. 30.) It was written in response to a letter, dated July 20, 1994, from Shepherd to Rice wherein Shepherd stated:

I would like to repeat my offer to buy the Huntsville, Missouri C.P. I will pay you the maximum the FCC will allow. . . .

I'm quickly available if you decide you would like to unload.

(Id. at 28.) In his August 3, 1994, response, Rice wrote:

I do not recall you ever making an offer to buy KAAM (FM) Huntsville, MO.

You did inquire several times, and i wrote you a letter stating that Contemporary Media does not sell CP,s [sic] but we would be open to a discussion with you over trading KAAM ... for KIRK and KIEL, Lebanon that your company has been attempting to "unload" for years.

That letter I wrote to you went unanswered, so I figured due to your personal situation you were not interested in expansion.

We fully intend to build KAAM, Huntsville, and operate the station, and at this time none of our stations are for sale.

(Id. at 30.)

135. The fourth letter was addressed to Cox, was written on paper with no letterhead, and was dated November 13, 1995. (Bur. Ex. 9.) Therein, Rice stated that the letter was a "folow-up [sic] on our phone call today." Rice further stated:

It seems that we should install a concrete pad as Cloyd [Cox's husband] suggested to set the new building on top of . . [sic] we need to be sure that Tom Holmes installs grounding material that will tie the building into the tower ground, and the other buildings at the time the building is placed on the pad. The grading should be done so water and snow does not come inside the door.

I think that you need to have a stearn [sic] talk with Ken [Kuenzie] & Dennis [Klautzer]. It is time for them to stay way away from KBMX, and let the manager manage. Dennis should direct any input to you or Dan [Leatherman].

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If this does not happen, and you get more reports of incidents, we will have to change the locks and keep them out of the station.

I'm afraid that if Dennis and Ken continue, we WILL LOSE the present manager.

One way we can keep morale up is to keep purchasing new equipment such as remote gear, promotional items, vans, etc., so that we give an image of progress, not a dead-end station.

I think we need to be very positive in running the stations, and fan- with everyone, but in the past we have been too nice, as in the case of Paul Hanks.

You need to make sure that Mary and Selina do almost all of the bookkeeping and office work, so that you can be free to do what you do best, managing the corporations.

(Id.; Tr. 309-10, 597.)

136. Cox testified that she did not consider Rice's November 13, 1995, letter to be a directive to do the things mentioned. Rather, Cox stated, she considered this letter as one "written by an individual whose whole life is the radio . . . [a]nd he is s[i]tting at an institution with nothing to do but idle time." (Tr. 311, 313-14.) She also remarked: "[O]nce he went to prison what [else] does he have to think about?" (Tr. 341.) Cox further testified that, in his November 13,1995, letter, Rice was making comments about certain things that happened a long time ago which she considered to be "kind of off the wall." (Tr. 311.)

CONCLUSIONS OF LAW

137. This proceeding was designated for hearing to determine the effect of Michael Rice's criminal convictions on the basic qualifications of the Licensees (Issue 1), to determine whether the Licensees misrepresented facts to the Commission (Issue 2), to determine whether there was an unauthorized transfer of control of the Licensees (Issue 3) and, ultimately, to determine whether the Licensees have the requisite qualifications to be or to remain Commission licensees (Issue 4). The findings establish, and it is concluded, that, while there was no unauthorized transfer of control, Rice's felony convictions and the Licensees' misrepresentation and lack of candor in certain reports submitted to the Commission must result in disqualification. Accordingly, it is ultimately concluded that the Licensees lack the requisite qualifications to be or to remain licensees of their respective radio stations, that the captioned licenses and permits must be revoked, and that the captioned application must be denied.

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Issue 1: The Felony Convictions of Michael Rice

138. This issue was specified in order to determine the effect of Michael Rice's criminal convictions on the basic qualifications of the Licensees. As was stated in the OSC, "Rice's conviction for serious and multiple felonies clearly requires that his misconduct must be considered in evaluating [CMI, CBI, and LBI's] qualifications to remain a Commission licensee." OSC at para. 9.

139. The facts surrounding Issue 1 are undisputed. Michael Rice is the sole shareholder, as well as the President and Treasurer, of CMI, CBI, and LSI. He is also a member of the Board of Directors of CMI, CBI, and LBI. In this regard, CMI and CBI each have a three-person Board, whereas LBI has a two-person Board. Since March 1997, Rice has been the only member of the LBI Board; the other position has been vacant. Pursuant to the bylaws of each corporation, Rice, as the sole shareholder, has the power to elect its Board of Directors.

140. On August 31, 1994, Rice was convicted in the State of Missouri of four counts of sodomy, six counts of deviate sexual assault in the first degree, and two counts of deviate sexual assault in the second degree. Each of these convictions constituted a felony. It was stipulated in the criminal proceeding that if certain witnesses were called to testify they w ̂ uld have testified that Rice put his mouth or hands on the witnesses' genitals. The offenses for which Rice was convicted took place between December 1985 and October 1990, and involved five children.

141. Rice was sentenced to eight years in prison for each of the four sodomy counts, seven years in prison for each of the six deviate sexual assault in the first degree counts, and five years in prison for each of the two deviate sexual assault in the second degree counts. Rice's sentences, totalling 84 years, were to run concurrently. Therefore, the maximum time Rice would have to be imprisoned was eight years. Rice was incarcerated at the Farmington Correctional Center, Farmington, Missouri, on September 30, 1994.

142. At the heart of Issue 1 is the application to the facts outlined above of the Commission's policy statements on character qualifications in broadcast licensing. The key pronouncements made by the Commission in this regard are contained in Character Qualifications, 102 FCC 2d 1179 (1986) (subsequent history omitted) ("1986 Character Policy Statement"), and the 7990 Character Policy Statement, 5 FCC Red 3252 (1990). 19

143. The 1986 Character Policy Statement concluded, inter alia, that the non-FCC behavior of concern to the Commission was that which would allow the agency to predict whether an applicant has or lacks the character traits of "truthfulness" and "reliability." 102 FCC

19 The Licensees contend that the 1986 and 7990 Character Policy Statements are arbitrary, capricious, and unlawful. Such a determination, however, would be far beyond the delegated authority of the Presiding Judge. Cf. Anax Broadcasting, Inc., 87 FCC 2d 483, 486 (1981); Goodlettsville Broadcasting Company, Inc., 8 FCC Red 57, 58 (Rev-Bd. 1992).

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2d at 1195. With respect to criminal convictions, the Commission stated that inquiry would be focused only on felony convictions "involving false statement or dishonesty," such as perjury, criminal fraud, and embezzlement, on the theory that such convictions were relevant in predicting the propensity of an applicant to be truthful and reliable in its dealings with the Commission. Id. at 1196-97 and 1196 n.40. The Commission further stated that criminal convictions not involving fraudulent conduct might be relevant if there was a "substantial relationship between the criminal conviction and the applicant's proclivity to be truthful or comply with the Commission's rules and policies." Id. at 1197.

144. The Commission also stated in the 1986 Character Policy Statement that it would ordinarily refrain from taking any action on non-FCC misconduct prior to adjudication by another agency or court. 102 FCC 2d at 1204-05. Nevertheless, the Commission acknowledged that:

there may be circumstances in which an applicant has engaged in nonbroadcast misconduct so egregious as to shock the conscience and evoke almost universal disapprobation. . . . Such misconduct might, of its own nature, constitute prime facie evidence that the applicant lacks the traits of reliability and/or truthfulness necessary to be a licensee, and might be a matter of Commission concern even prior to adjudication by another body.

Id. at 1205 n.60.

145. The 1986 Character Policy Statement listed several mitigating factors to be taken into consideration in determining the weight to be accorded the acts of misconduct. These factors were: the willfulness of the misconduct, the frequency of the behavior, the currentness of the misconduct, the seriousness of the misconduct, the nature of any participation of managers and owners, the efforts made to remedy the wrong, and the applicant's record of compliance with the Commission's rules and policies. 102 FCC 2d at 1227-28.20 The Commission noted that some of these factors were "good evidence" as to whether rehabilitation had occurred, but stated that no separate rehabilitation inquiry appeared necessary, "although findings regarding rehabilitation would not be inappropriate." Id. at 1228-29. The Commission also imposed a strict 10-year limitation on relevant character inquiries. Id. at 1229.

20 The 1986 Character Policy Statement also considered misconduct by corporate entities, and discussed the factors which would be taken into consideration in mitigation of such misconduct Included among those factors were: whether the effect of the misconduct could be tempered by the removal of the individual responsible for the wrongdoing, whether the alleged wrongdoer was actively and actually involved in the day-to-day operations and activities of the stations, whether the licensee took action to remove the wrongdoer before or after the Commission became aware of the misconduct, and the efforts made by the licensee to prevent recurrences of the wrongdoing. 102 FCC 2d at 1218-20. The Commission further stated: "While the impact of the individual's actions on daily broadcast operation may have been limited, the involvement of the individual in broadcast activity may raise a character question and warrant! ] at least some exploration." Id. at 1220.

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146. In the 7990 Character Policy Statement the Commission revisited its earlier pronouncement because it had taken an overly narrow view of the range of misconduct relevant to licensing decisions. The Commission stated that it believed that a propensity to comply with the law generally was relevant to its public interest analysis, and that an applicant or licensee's willingness to violate other laws and, in particular, to commit felonies, bore on the Commission's confidence that an applicant or licensee would conform to FCC rules and policies. Consequently, the Commission held that evidence of any felony conviction would be relevant in evaluating an applicant or licensee's character. Because of the serious nature of all felonies; the Commission continued, any such conviction provided an indication of an applicant or licensee's propensity to obey the law. 5 FCC Red at 3252.

147. While the 1990 Character Policy Statement broadened the range of relevant non- FCC misconduct to embrace any felony conviction, the Commission recognized that not all such convictions were equally probative. Therefore, the Commission stated that it continued to believe that the mitigating factors specified in the 1986 Character Policy Statement, listed above, must be taken into consideration. To this list, however, the Commission added the factor of rehabilitation. 5 FCC Red at 3252. With respect to rehabilitation, the Commission stated that it would consider whether the applicant has not been involved in any significant wrongdoing since the misconduct occurred, how much time has elapsed since the misconduct, the applicant's reputation for good character in the community, and meaningful measures taken by the applicant to prevent the future occurrence of misconduct. Id. at 3254 n.4.

148. An analysis of the factors that the 1986 and 7990 Character Policy Statements deemed relevant in determining the weight to be accorded Rice's felony convictions reveals that all but one of those factors militate against the Licensees. First, it is abundantly clear that Rice's misconduct was extremely serious and was of a nature that is so egregious as to shock the conscience and evoke almost universal disapprobation. Thus, Rice was convicted of 12 felonies involving the sexual abuse of five children, and Rice was sentenced to serve a lengthy prison term. The Licensees argue that, in ordering Rice to serve only 8 out of a potential 84 years in prison, the judge in the criminal proceeding found sufficient reason for leniency and that this mitigates the seriousness of Rice's misconduct. This argument is rejected as complete speculation. There is simply no evidence relating to the reasons why the judge in the criminal proceeding ordered Rice's sentences to run concurrently. In any event, it can hardly be contended that eight years is not a significant prison sentence.

149. Second, the record does not reflect that Rice's misconduct was other than willful and intentional. Third, Rice's misconduct was repeated, as evidenced by his conviction of 12 felonies, and his misconduct took place over an extended, five-year, period of time.

150. Fourth, all of the misconduct occurred within the 10-year period the Commission deems relevant to character inquiries, i.e., the 10 years before designation for hearing. In this regard, the Licensees note that there is no evidence of any misconduct by Rice subsequent to October 1990, and that nearly seven years have passed since the last event giving rise to his convictions. While this is undoubtedly true, it carries very little weight. This is so because Rice

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was arrested in November 1990 (the month following the last incident) for criminal charges involving sexual acts with a teenager, and formal criminal proceedings were initiated against him. Therefore, Rice knew at the time of his arrest that, as the subject of a formal criminal proceeding, all of his subsequent conduct would be carefully scrutinized. As a result, the fact that Rice committed no further criminal acts while the "spotlight" was on him is not entitled to much credit. Cf. RKO General, Inc., 35 FCC 2d 100, 103 (1972) (probative value of evidence of programming occurring after notice is given that a renewal application is in jeopardy is small). In addition, since Rice has been incarcerated for almost three of the nearly seven years which have passed since the last event leading to his conviction, he presumably had no opportunity to commit any further acts of misconduct.

151. Fifth, the individual guilty of the misconduct, Rice, is the sole shareholder, and is an officer and director, of CMI, CBI, and LBI. Indeed, Rice is the only remaining director of LBI. Pursuant to the bylaws of each corporation, Rice, as the sole shareholder, has the power to elect its Board of Directors. Sixth, the Licensees' efforts to remedy the wrong, namely, their attempt to isolate Rice from having any "managerial, policy, or consultative role" in the affairs or operations of the stations, was not completely successful. As will be discussed in connection with Issue 2, the evidence establishes that, after his release from the hospital in October 1991, Rice did consultative work for the Licensees, was involved in at least some of the personnel and programming decisions of the Licensees' stations, and engaged in other management-level activities.

152. The Licensees place great weight on the Boards of Directors' resolutions which, they claim, insulated Rice from the affairs and operations of the stations. It is clear, however, that such weight is misplaced since those resolutions were largely ineffective or were ignored. As noted above, Rice was involved in some personnel and programming decisions and engaged in management-level activities at the time he was supposed to have been insulated. Further, Rice was pennitted to perform consultative work for the Licensees in direct contravention of the very resolutions upon which they rely. When asked why no corporate resolutions were passed authorizing Rice's consultative activities, Janet Cox, the Chief Executive Officer, Vice President, Secretary, and a director of CMI and CBI, and the Vice President of LBI, testified that the corporations were informally structured and that Rice had a lot going on in his life at that particular time. However, the Licensees may not be given credit for the adoption of formal corporate resolutions without also suffering the consequences for ignoring those resolutions, or for acting informally, when it suited their purposes to do so. In addition, it is not apparent what the other matters going on in Rice's life had to do with the failure of the Boards to adopt resolutions authorizing his consultative work. The initial resolutions were adopted without Rice's participation and, at the time the consultative activities were undertaken, CMI, CBI, and LBI had other Board members who could have acted.

153. In contrast to the factors discussed above, the lone mitigating factor in the Licensees' favor is their collective good record of compliance with the Commission's rules and policies. However, this favorable factor does not, in and of itself, outweigh the other factors which all militate against the Licensees.

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154. The Licensees argue that they should not be penalized for Rice's felony convictions because there is no evidence connecting his misconduct to their record of compliance with the Commission's rules and policies or to their propensity to be truthful in their dealings with the Commission. While it does not appear that Rice's criminal activities affected the broadcast operations of the Licensees' stations, the same may not be said of the Licensees' proclivity to deal truthfully with the Commission. In other words, there is a nexus between Rice's criminal conduct and the truthfulness of certain representations the Licensees made to the Commission. Specifically, as will be discussed under Issue 2, the evidence -establishes that the Licensees misrepresented facts and lacked candor in reporting to the Commission the nature and extent of Rice's role in the management, operations, and affairs of then" stations during the time the criminal proceedings were pending. This misrepresentation and lack of candor was a direct result of Rice's criminal misconduct. Had there been no such misconduct, the Licensees would have had no need to submit to the Commission reports which misrepresented facts and lacked candor. Therefore, Rice's criminal activities began a chain of events which ultimately led to the Licensees' deception.

155. In the 1986 and 7990 Character Policy Statements, the Commission placed paramount importance and controlling significance on the predictive value of conduct demcastrating whether an applicant or licensee possessed the character trait of "truthfulness." The evidence establishes that the Licensees lack this trait and that they cannot be relied upon to deal with the Commission in a fully truthful, candid, and forthright manner. It is also clear that the evidence of deception may be traced back to Rice's criminal activities. Consequently, it must be concluded that CMI, CBI, and LBI are not basically qualified to be or to remain Commission licensees. E.g., Leflore Broadcasting Co., Inc., 65 FCC 2d 556 (1977), ajfd, 636 F.2d 454 (D.C.Cir. 1980); Sea Island Broadcasting Corporation of S.C., 60 FCC 2d 146 (1976), affd, 627 F.2d 240 (D.C.Cir. 1980), cert, denied, 449 U.S. 834 (1980).

156. The cases cited by the Licensees in support of their position that disqualification is not warranted are all distinguishable from the instant case. In both Hara Broadcasting, Inc., 8 FCC Red 3177, 3179 (Rev.Bd. 1993), and The Petroleum V. Nasby Corporation, 9 FCC Red 6072 (ALJ 1994), ajfd in pan and modified in part, 10 FCC Red 6029 (Rev.Bd. 1995), recon. granted in pan, 10 FCC Red 9964 (RevJBd. 1995), remanded, 11 FCC Red 3494 (1996), summary decision, FCC 97D-04 (ALJ March 24, 1997), the applicant or licensee's general proclivity to deal truthfully with the Commission was not in question. That is not the case here, where there has been a demonstrated misrepresentation and lack of candor resulting from the criminal misconduct. In addition, the wrongdoer in Nasby divested all of his stock in the licensee and resigned his director and officer positions, thereby eliminating any potential for influence over the licensee's affairs. Here, however, Rice is the sole stockholder, as well as an officer and director, of CMI, CBI, and LBI. He has the power to elect their Boards of Directors and is, therefore, in a strong position to influence the operations of those corporations. Indeed, the record reflects that Rice did influence some personnel and programming decisions as well as engage in management-level activities.

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157. In Capitol City Broadcasting Company, 8 FCC Red 1726, 1732-33 (Rev.Bd. 1993), no criminal charges were adjudicated or even sought against the applicant, and there was no reason to suspect the applicant of trying to mislead any agency including the Commission. Here, there have been felony convictions against Rice, and misrepresentation and lack of candor are involved. In The Kravis Company, 11 FCC Red 4740 (1996), unlike the instant case, there was no final adjudication of guilt and the representations of the licensee were not at issue. See Attachment A of the Licensees' proposed findings and conclusions (official notice taken).21 Further, the Commission's ruling made no mention of the criminal misconduct so it is not clear that it was even considered. In Wilkett v. ICC, 710 F.2d 861 (D.C.Cir. 1983) (subsequent history omitted), there was no record of "company misdeeds" and the carrier's fitness was at issue only because the sole proprietor had been convicted of nontransportation-related crimes. 710 F.2d at 863. Here, there is a record of "company misdeeds" stemming from the criminal misconduct of the sole shareholder, namely, the Licensees' misrepresentation and lack of candor.

158. The Licensees contend that Rice should be treated by the Commission as having been rehabilitated because he has an excellent reputation in the community, he has not been involved in any misconduct for nearly seven years, and remedial measures were taken to insulate him from the operation and affairs of the stations. These assertions do not establish rehabilitation. The statements of Rice's character witnesses are not entitled to great weight inasmuch as they fail to address the impact of Rice's criminal convictions on his reputation. The statements of Sellmeyer, Thompson, and White made no reference at all to Rice's felony convictions, and the statement of Butler acknowledged that he was not familiar with Rice's criminal activities. Moreover, even assuming that Rice has an excellent reputation for good character, consideration of the remaining rehabilitation factors does not favor Rice. As discussed earlier, very little weight is warranted for the time period which has elapsed since Rice's last act of misconduct, and the Licensees did not effectively isolate Rice from the management, operations, and affairs of their stations.22

159. Alessandro Broadcasting Company, 99 FCC 2d 1 (RevBd. 1984) (subsequent history omitted), cited by the Licensees in support of their argument, is distinguishable. In that case, the applicant had been "completely rehabilitated under local law, as evidenced by the issuance of a Certificate of Rehabilitation by the Superior Court of California," his civil rights had been restored, and no "predictive nexus" was found between the applicant's past crime and his current and future fitness to be a Commission licensee. 99 FCC 2d at 11 n.13. The facts of the instant case are not even remotely similar to those in Alessandro.

21 Attachment A consists of the May 21, 1991, letter to the Commission from counsel for The Kravis Company reporting on the status of a criminal proceeding involving the company's president and sole stockholder.

22 The Licensees' request to take official notice of the material contained in Attachment B of their proposed findings and conclusions is denied. The fact that Rice will enter and complete a special rehabilitation program before he is released from prison is not probative evidence of rehabilitation at this point in time. See Memorandum Opinion and Order, FCC 96M-202, released September 5, 1996.

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Issue 2: Misrepresentation Issue

160. This issue was specified in order to determine whether the Licensees misrepresented to the Commission that, subsequent to his arrest, Rice had been completely excluded from any involvement in the management or operation of the CMI, CBI, and LBI radio stations. The issue was based upon reports filed by the Licensees, beginning in 1991, relating to the criminal charges pending against Rice and the Licensees' efforts to insulate him from the management, operations, and affairs of its radio stations. OSC at paras. 14-15.

161. In the 7956 Character Policy Statement, 102 FCC 2d at 1210, the Commission emphasized that the trait of "truthfulness" was one of the key elements of character necessary to operate a broadcast station in the public interest. If the Commission cannot believe and rely on its licensees' reports, it cannot maintain the integrity of its processes. Tri-State Broadcasting Co., Inc., 5 FCC Red 1156, 1173 (Rev.Bd. 1990). Consequently, a licensee's intentional deception of the Commission by the submission of either false information or incomplete and misleading information is viewed as a "serious breachf ] of trust." 1986 Character Policy Statement, 102 FCC 2d at 1211. Where the submission of false or inaccurate information results from an intent to deceive, the remedy may be total disqualification, even if the facts concealed do not appear to be particularly significant. Standard Broadcasting, Inc., 7 FCC Red 8571, 8573-74 (RevBd. 1992), and cases cited therein.

162. The findings establish, and it is concluded, that the Licensees both misrepresented facts and lacked candor in their reports to the Commission. Specifically, in an exhibit attached to a May 14, 1992, FCC Form 307 application, the Licensees asserted that there had been "no change" in Rice's status with CBI. This was a false statement of fact and therefore a misrepresentation. Fox River Broadcasting, Inc., 93 FCC 2d 127, 129 (1983). In that same exhibit, the Licensees concealed pertinent facts and were not fully informative or completely forthcoming with respect to the true nature and extent of the activities being undertaken by Rice on behalf of, and with the knowledge of the Licensees. This constituted a lack of candor. Id. In their September 30, 1994, letter the Licensees repeated their earlier statements that, since his hospitalization, Rice has been "excluded from involvement" hi the management and operations of the Licensees' stations and construction permits. This, too, was a false statement of fact and a misrepresentation. Id. The findings also establish, and it is concluded, that the Licensees' deception was intentional.

163. In light of these determinations, it must be further concluded that the Licensees cannot be relied upon to deal with the Commission in a fully truthful, candid, and forthright manner. Therefore, they lack the requisite qualifications to be or to remain Commission licensees, and their authorizations must be revoked. E.g., Leflore Broadcasting; Sea Island Broadcasting.

164. Initially, it must be noted that the phrase "lack of candor" does not appear in the specific language of Issue 2; the issue speaks only in terms of misrepresentation. The phrasing

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of this issue, however, does not preclude a conclusion that the Licensees lacked candor. KQED, Inc., 3 FCC Red 2821, 2826 (1988) (dictum). In this regard, in Fox River, 93 FCC 2d at 129, the Commission stated that, although misrepresentation and lack of candor can be distinguished in their manifestations, both "represent deceit; they differ only in form." Further, the OSC placed the Licensees on specific notice that the truthfulness of the representations contained in then- reports was at issue, they were provided with a full and fair opportunity to litigate that issue (whether it was termed a "misrepresentation" or a "misrepresentation/lack of candor" issue), and they were not prejudiced by surprise. Se<> Maria M. Ochoa, 7 FCC Red 6569, 6571 (Rev.Bd. 1992), ajfd, 8 FCC Red 3135, 3136 (1993), recon. denied, 9 FCC Red 56, 57-58 (1993), aff'd, 98 F.3d 646 (D.C.Cir. 1996) (Table); see also Tr. 638. Moreover, there are no facts which would have been adduced under a "misrepresentation/lack of candor" issue which were not adduced under the existing issue.

165. Turning to the facts, on June 14, June 21, August 1, and December 3, 1991, LBI and CBI informed the Commission that, since his hospitalization in April 1991, Rice has had "no managerial, policy or consultative role" in the affairs of the Licensees. On two of those occasions (June 14 and June 21, 1991), LBI and CBI further represented that, until the criminal charges were resolved, Rice was being "completely insulated and excluded from any involvement in the managerial, policy, and day-to-day decisions" involving the Licensees' stations and construction permits. In their September 30, 1994, letter the Licensees again represented that, since his hospitalization, Rice "has been excluded from involvement" in the management and operations of their stations and construction permits.

166. It is undisputed that in early 1992 Rice began doing work for the Licensees' stations, and the Licensees began using him in a consultative capacity. However, the Licensees did not disclose Rice's changed role to the Commission. On the contrary, hi their May 14, 1992, exhibit, the first report submitted after Rice began his consultative and work activities, the Licensees misrepresented and concealed material facts. Specifically, the Licensees made a false statement of fact by representing that there had been "no change in Mr. Rice's status with [CBI]" when there had indeed been a change. The Licensees also concealed from the Commission the highly significant fact that Rice began to have a consultative role hi the Licensees' affairs. Nowhere in the May 14 exhibit, or in any other submission, did the Licensees directly inform the Commission of Rice's consultative activities.

167. The Licensees argue that they did inform the Commission of Rice's consultative role, and that they did so by omitting the word "consultative" from the pertinent portion of their exhibit. In other words, the Licensees claim, since they had previously stated that Rice had "no managerial, policy, or consultative role," and their May 14, 1992, exhibit stated that Rice had "no managerial or policy role," the elimination of the word "consultative" was a "modifi[cation]" which "more accurately" described Rice's changed role. Cox also testified that by excluding the word "consultative," the Licensees were "trying to ... be as truthful as possible with the FCC." This argument, as well as Cox's testimony, must be rejected.

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168. First, the Licensees' contentions are belied by the very document they claim contained the disclosure, namely, the exhibit to their May 14, 1992, application. There, in the first sentence of the paragraph in question, the Licensees stated: "There has been no change in Mr. Rice's status with [CBI.]" (Emphasis added.) Second, if the Licensees had wanted to be "as truthful as possible" with the Commission, common sense and logic dictate that they would, at some point in time, have told the Commission directly and without obfuscation about Rice's consultative role. The record reflects, however, that Rice's activities were never directly reported, and Cox's strained and illogical testimony at^ut having "modified" the Licensees' reports to "more accurately" describe Rice's changed role so as "to be as truthful as possible with the FCC" lacks credibility.23 In this connection, the Presiding Judge notes that Cox appeared to be a very strong-minded, "straightforward," no-nonsense, take-charge, type of person. She was all business and answered the questions asked of her directly, bluntly, and without much embellishment or equivocation. Given the nature of her personality and testimony, the Presiding Judge has no doubt that if Cox had wanted the Commission to know that Rice was engaging in consultative activities, a clear statement to that effect would have been submitted, and the Commission would have known in no uncertain terms exactly what Rice was doing.24 The fact that no such statement was ever submitted to the Commission indicates that the Licensees had no intention of disclosing Rice's changed role.

169. In view of the Licensees' conduct, the only way for the Commission to have discovered that the word "consultative" was left out of the exhibit would have been to compare, paragraph-by-paragraph, sentence-by-sentence, phrase-by-phrase, and word-by-word, at least five different multi-page reports filed by the various components of the Licensees in connection with separate matters over the course of nearly a year. Even if the omission of the single word "consultative" had been detected, the Commission still would not have known of Rice's consultative activities because the Licensees also represented in the same paragraph of the same exhibit that there had been "no change" in Rice's status with the Licensees. The Commission does not have the time, budget, or manpower to engage hi such extensive efforts to discover the truth, or to play a game of "hide-and-seek" with those it regulates. Standard Broadcasting, 7 FCC Red at 8573 n.7. As the Court of Appeals stated in WHW Enterprises, Inc. v. FCC, 753 F.2d 1132, 1139 (D.C.Cir. 1985):

[Applicants before the FCC are held to a high standard of candor and forthrighmess. The Commission must license more than 10,000 radio and television stations in the public interest, and therefore relies heavily on the completeness and accuracy of the submissions made to it. RKO General, Inc. v. FCC, 670 F.2d 215, 232 (D.C.Cir. 1981), cert, denied, 456 U.S. 927 ... (1982). Thus, "applicants . . . have an affirmative duty to inform the Commission of the

23 It may also be concluded that Cox's testimony was itself a lack of candor.

M When asked by the Presiding Judge why a direct statement to the effect that Rice began engaging in limited or sporadic engineering tasks for the stations was not included in the reports filed with the Commission, Cox answered: "I don't know."

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facts it needs in order to fulfill its statutory mandate." Id. Indeed, not only does the Commission "refuse to tolerate deliberate misrepresentations," Nick J. Chaconas, 28 F.C.C.2d 231, 233 (1971); see also FCC v. WOKO, Inc., 329 U.S. 223, 227 ... (1946); WMOZ, Inc., 36 F.C.C. 202, 237-39 (1964), it may also premise a finding of lack of candor on omissions as well. RKO General, Inc. v. FCC, 670 F.2d at 230. As the [Review] Board ... has stated, the "core" of a finding of lack of candor is an '"omission ... [a] failure to be completely forthcoming in the provision of information which could illuminate a decisional matter.'" Coastal Bend Family Television, Inc., 94 F.C.C.2d 648, 658 (Rev.Bd. 1983) (quoting Fox River Broadcasting, Inc., 88 F.C.C.2d 1132, 1137 (Rev.Bd. 1982).

170. Apart from Rice's consultative role, the evidence establishes that, after his release from the hospital in October 1991, Rice was also involved in at least some of the programming matters and personnel decisions of the Licensees, rejected offers to purchase one of the Licensees' construction permits, invited an offer to purchase a station once it went on the air, suggested the trade of specific broadcast properties, and directed the group program director and two of the general managers of the Licensees' stations to perform certain tasks. All of these endeavors were management-level activities and some, such as programming and personnel matters, affected the daily operations of the stations. Yet the Licensees never informed the Commission of Rice's actions. Rather, the Licensees misrepresented in their September 30, 1994, letter that Rice had been "excluded from involvement" in the management and operations of its stations and construction permits since April 1991.25

171. The record reflects that, after his release from the hospital, Rice was involved in the programming of WFMZ and WZZQ. Rice had listened to WZZQ and believed that the station had strayed from the central focus of its format. Rice asked Leon Paul Hanks, the Licensees' group program director, to visit the station to go through its music. As group program director, Hanks reported directly to Rice and gave him regular updates on how things were going at the stations. Hanks and Rice discussed programming matters over the telephone on a frequent basis, including problems with the program director at WZZQ and whether new songs added to the playlist were consistent with the station's format. If Rice heard something on the air he did not like, he notified Hanks, who was expected to take care of it. Rice was also sent copies of memos that Hanks addressed to the stations' program directors. Rice regularly checked KFMZ and WZZQ's new song reports in the trade publication R&R and complained to Hanks when too many new songs were added.

25 Even assuming that Rice had no involvement in personnel and programming matters and that he did not engage in management-level activities, disqualification would still be warranted on the basis of the Licensees' deception with respect to Rice's consultative role. As the Supreme Court stated in WOKO, 329 U.S. at 227: "The fact of concealment may be more significant than the facts concealed. The willingness to deceive a regulatory body may be disclosed by immaterial and useless deceptions as well as by material and persuasive ones."

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172. In addition, Rice became involved in a programming matter at KBMX(FM). After being told by LBI shareholder Dennis Klautzer that the station needed more sound effects CDs, Rice sent general manager Daniel Leatherman a fax asking Leather-man to let him know if the station needed such CDs. Leatherman complied with Rice's request by responding to Cox. Rice also discussed programming matters with John Rhea, the general manager of WBOW(AM) and WZZQ(FM), and asked Rhea to obtain information about the cost of the Satellite Music Network. Rhea carried out Rice's instructions.

173. Cox testified that Rice had no involvement in programming decisions after April 1991. Richard Hauschild and Kenneth Brown, the current general managers of several of the Licensees' stations, testified that they had no communications with Rice regarding programming. However, neither Cox, Hauschild, nor Brown was questioned about any of the specific matters discussed in the preceding two paragraphs, and their testimony does not, therefore, undermine the facts which form the basis for the conclusion that Rice was involved in at least some programming matters after his hospitalization.

174. The evidence establishes that, after he was released from the hospital, Rice was involved in some of the personnel decisions of the Licensees. Rice directed Hanks to fire (i.e., get a replacement for, get rid of, or let go) Janice Pratt, Bob Kinneson, Sean Madden, and Jeff Davis. Rice also informed Hanks that Ben Jacobs, Mike Steel, and Mark Savage should be fired. In addition, Hanks overheard a conversation in which Rice told Cox that John Rhea should be let go. Jacobs, Savage and Rhea were ultimately terminated, and Steel was either fired or resigned. Similarly, Rice directed Rhea to fire Steve Holler, Steel, and Savage.26 Further, Rice approved moving Jacobs to the position of WZZQ program director after it had been suggested by Hanks. The record also reflects that Rice was involved in some manner in the hiring of Steel.

175. The evidence of Rice's involvement in personnel matters was challenged by Cox and Hauschild. However, it is clear that neither Cox nor Hauschild had any personal knowledge of Rice's conversations with, or directives to, Hanks and Rhea. In this connection, both Cox and Hauschild admitted that they had no way of knowing whether Rice directed anyone else to do something or whether Rice had a conversation about a particular matter with someone else. Cox further admitted that Hanks "very well could have" cleared new hires with Rice.

176. The only individual with personal knowledge of the disputed facts who could have rebutted the testimony of Hanks and Rhea was Rice himself. But Rice did not testify in this proceeding, although it appears that such testimony could have been arranged. Given these circumstances, the failure to call Rice "give[s] rise to the strongest inference against [the Licensees] which the opposing evidence permits." Dow Chemical Co. (U.K.) v. S. S. Giovannella D'Amico, 297 F.Supp. 699, 701 (S.D.N.Y. 1969); see also A. C. Becken Co. v. Gemex Corporation, 314 F.2d 839, 841 (7th Cir. 1963).

26 Although Rhea attributed the termination of Chip Ramsey to Rice's dislike for him (Ramsey), there is no direct evidence that Rice ordered Ramsey's firing.

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177. The record reflects that, after his release from the hospital, Rice rejected offers to purchase one of the Licensees' construction permits, invited an offer to purchase a station, and suggested the trade of specific broadcast properties. In April 1993, Rice sent letters to two individuals informing them that the Licensees did not want to sell the construction permit for their Huntsville, Missouri, station. One letter was written as a follow-up to telephone calls made to Cox, and the other was a follow-up to a telephone call to Rice. One letter also invited the recipient to contact the Licensees if he was interested in purchasing the station once it was built and on the air. The other also contained a reference to a suggestion mad& by Rice to "swap" radio station properties with the recipient. In July 1994, Rice received another offer to purchase the Licensees' Huntsville permit. In his August 1994 response, Rice related that CMI did not sell construction permits but stated that the Licensees "would be open to a discussion with you over trading" the Huntsville permit for two of the recipient's stations.

178. The Licensees contend that these letters did not relate to management, policy, or day-to-day decision making in connection with the operation of the stations. This argument is without merit. Suffice it to say, the determination as to whether or not to sell or trade a station or construction permit is the ultimate management-level decision, and demonstrates the extent of authority retained by Rice over the Licensees despite his purported exclusion from involvement in their affairs.

179. The evidence establishes that, after he was released from the hospital, Rice directed the group program director and two of the general managers of the Licensees' stations to perform particular tasks. As discussed above, Hanks, the group program director, was told by Rice to fire certain employees of the Licensees, and was expected to take care of programming problems which Rice brought to his attention. Likewise, Rhea, the general manager of WBOW(AM) and WZZQ(FM), was directed by Rice to fire certain employees, and was asked by Rice to compile information about the cost of the Satellite Music Network. In addition, Rhea was directed by Rice to show portions of a building Rice owned to prospective tenants, and Rice made Rhea responsible for assuring that the building was cleaned up. Further, Rice assigned several projects to Leatherman, the general manager of KBMX(FM). These dealt with the purchase of an outdoor sign, the construction of a storage building, the acquisition of a water cooler, the repair of the newsroom telephone, pressure washing the air conditioner condenser units, construction for the conversion of a shower stall into a storage room in the studio building, and determining whether the station needed some sound effects CDs. Leatherman took care of all the projects that Rice assigned to him.

180. The Licensees contend that, with the exception of the sound effects CDs, the tasks Rice gave to Leatherman were not related to the daily operations of KBMX but had to do with Rice's concerns as a landlord with the station's physical plant. While this is certainly arguable, it is not decisionally significant. This is so because the evidence clearly shows that Rice gave orders to Leatherman, the general manager of one of the Licensees' stations, and that Leatherman carried out those orders. Leatherman admitted that Rice supervised his activities to the extent reflected in the assignment and completion of these projects. Rice also gave orders to Rhea, another general manager, and to Hanks, the group program director. Rice's ability and authority

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to direct the activities of such high level employees of the Licensees is unquestionably a management-level activity and prerogative. However, the Licensees did not tell the Commission that Rice had engaged in management-level activities. On the contrary, the Licensees told the Commission that Rice had been "excluded from involvement" in the management and operations of its stations and construction permits after his release from the hospital. This was not a truthful representation.

181. In reaching the conclusion that Rice's involvement was not limited to consultative activities, the Presiding Judge has given more weight to the testimony of Hanks and Rhea than to the testimony of Cox, Hauschild, Brown, and Leatherman. The primary theme and overall tenor of the testimony of Hanks and Rhea was that, contrary to the contentions of the Licensees, Rice had more than a consultative role in the affairs of the Licensees' stations and construction permits after he was released from the hospital. The general nature of their testimony was corroborated by the contemporaneous documentary evidence which is included in the record. In this connection, the record contains six memoranda faxed between Rice and Leatherman wherein Rice directed Leatherman's activities. The record also contains three documents wherein Rice rejected offers to purchase one of the Licensees' construction permits, invited an offer to purchase a station once it went on the air, and suggested a station swap. In addition, the record contains a letter Rice wrote to Cox after he was incarcerated giving Cox instructions with regard to specific matters involving the Licensees' stations.27 These contemporaneous documents show that Rice was doing more than consultative work, and that he had not been excluded from having a managerial role in the affairs of the Licensees. This was the gist of the testimony of Hanks and Rhea and such testimony is, therefore, credible. See TeleSTAR, Inc., 2 FCC Red 5, 13 (Rev.Bd. 1987) (credibility involves, inter alia, the manner in which the testimony "hangs together with other evidence"); American International Development, Inc., 86 FCC 2d 808, 815 (1981) (the existence of corroborative evidence is a factor to be considered in weighing the truth of a witness' testimony).

182. On the other hand, the only contemporaneous documents which are consistent with the testimony of Cox, Hauschild, Brown, and Leatherman are the Boards of Directors' resolutions ostensibly isolating Rice from having any "managerial, policy, or consultative role" in the affairs or operations of the stations. However, these are entitled to no corroborative weight. As discussed above, those resolutions were largely ineffective or were ignored. In other words, despite the specific prohibition contained in those resolutions, Rice was permitted by Cox to assume a consultative role. It is not a very large leap to conclude from the overall record in this proceeding that Rice was permitted (or assumed for himself) a managerial role as well.

183. In assessing the credibility of the witnesses, the interest each has in the outcome of this proceeding was also considered. The Prattville Broadcasting Co., 5 FCC 2d 601, 602 (1966). This evaluation leads to the conclusion that Cox, Hauschild, and Brown have much more

27 Cox's testimony about this letter is rejected as contrary to the plain meaning of the language contained in the letter.

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to lose from an adverse resolution of the issues than do Hanks, Rhea, and Leatherman. It does not appear that either Hanks, Rhea, or Leatherman has any pecuniary interest in the outcome of this proceeding. In contrast, Hauschild, the general and sales manager of KFMZ, has been employed with CBI since late 1988. He has no other employment. Except for "small investments," he has no additional sources of income. Similarly, Brown has been employed by the Licensees as the general manager of WZZQ(AM), WZZQ(FM), and WBOW(AM) since April 1993. Obviously, the revocation of the Licensees' authorizations would have a detrimental effect on Hauschild and Brown in that it would result in the loss-of their jobs.

184. Cox has been employed by the Licensees since mid-1982 and signed an Employment Agreement with CMI and CBI in June 1991. Pursuant to this agreement, which runs for a term of 10 to IS years, Cox was to receive an initial base salary of $57,000, annual cost of living increases, bonuses, health insurance coverage, the use of an automobile, and a number of other perquisites which are outlined in the findings. In 1995, Cox earned either $56,000 or $60,000 from the Licensees. In addition, Cox's daughter and son are both employed in managerial positions by the Licensees, and her husband's company, in which she has a part interest, does a small amount of business with the stations. Given these facts, it is evident that the revocation of the Licensees' authorizations would have a very grave impact not only on Cox, but on her son and daughter as well.

185. Cox testified that she and her family have other sources of income, and that if she did not have her employment position with CMI and CBI she could continue to live in the style to which she has become accustomed. Cox's testimony in this regard is rejected as uncorroborated, "inherently improbable and irreconcilable with or contrary to ... common . . . experience^ and] opposed to all reasonable probabilities[.]" Prattville, 5 FCC 2d at 602.

186. The Licensees argue that the testimony of Hanks and Rhea, to whom they refer as former "disgruntled" employees, is "inherently unreliable." With respect to Hanks, the Licensees contend that he had a "confessed desire" to get everything he can from CBI in his pending discrimination lawsuit. In support, the Licensees rely on Hauschild's testimony that Hanks stated off the record at bis deposition in his discrimination case that he wanted "to get the station, the company, Mike Rice, and everything the law is going to allow me." However, the pertinent testimony of Hauschild has been rejected. As discussed in the findings^ Hanks denied making the off-the-record statements attributed to him and his denial has been fully credited. It cannot be concluded, therefore, that Hanks was out to "get Mike Rice" or "get his stations."

187. The Licensees also point to Hanks' testimony that he "can have the tendency to exaggerate." However, this testimony related to one specific matter, namely, that Rice never changed his mind once it was made up. Hanks admitted that this testimony was "a little over dramatic" and exaggerated, and he altered his testimony. Hanks also stated that he did not believe that any of the other answers he gave at the hearing were exaggerated. Counsel for the Licensees had a full opportunity to test that assertion. Nevertheless, the Licensees do not raise, and the record does not reflect, any other specific exaggerations in Hanks' testimony.

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188. The Licensees maintain that Rhea viewed his termination as a career setback and that he therefore harbored animosity towards Rice and Cox. However, a careful review of the germane testimony of Rhea (Tr. 521-22) reveals that he did not blame Rice for his termination at the time it occurred. Rather, Rhea testified on cross-examination that he was told that he was terminated because the station's numbers were not what they should have been. At that point, counsel for the Licensees very skillfully asked Rhea a series of questions which led to Rhea's testimony that he would blame Rice "a little bit" for his termination "if [he] want[ed] to blame someone." (Tr. 522, emphasis added.) Rhea's answer to this hypothetical question does not establish either that he attributed his firing to Rice or that he was biased against Rice. Rhea did testify that, "[a]t the time," he felt animosity toward Cox for his career setback. (Tr. 523-24.) But there was no indication in his testimony that those feelings toward Cox have continued unabated throughout the three-and-one-half-year period between the time of Rhea's firing and his testimony.

189. The Licensees also contend that Rhea's "credibility came into serious question" when he "denied" that there were complaints lodged against him by station personnel during his tenure at WBOW and WZZQ. However, the relevant testimony has been misconstrued. Rhea did not flatly deny that there were complaints. Rather, when asked generally whether there were any "[c]omplaints against [him] by the personnel and by tte staff," Rhea responded with an ambiguous: "Not really." (Tr. 515.) However, when asked specifically whether he was "accused of some unauthorized contact with some of the female employees," Rhea responded with an unequivocal: "I was. I was." (Id.) On redirect examination by counsel for the Bureau, Rhea explained the circumstances surrounding the complaints, and his belief that they had no merit and were not a factor in his termination. (Tr. 527-29; see also Tr. 516.) Under these circumstances, Rhea's ambiguous "Not really" answer does not undermine his overall credibility.28

190. The findings establish, and it is concluded, that the Licensees intended to mislead and deceive the Commission with respect to Rice's actual role in the affairs of the Licensees' stations and construction permits. As discussed earlier, considering the nature of Cox's personality and her testimony, the Presiding Judge has no doubt that if Cox had wanted the Commission to know about Rice's true activities, a clear statement to that effect would have been submitted, and the Commission would have known in no uncertain terms exactly what Rice was doing. The fact that no such statement was ever submitted indicates that the Licensees had no intention of disclosing those activities to the Commission.

191. In addition, there can be no question that Cox had actual knowledge of, at a minimum, Rice's changed role and the fact that he was engaging in consultative activities; it was she who made the decision to allow him to assume that role. Yet the Licensees misrepresented

28 By using the Licensees' rationale, it might also be argued that Leatherman's "credibility came into serious question" when he initially answered "Never" to a question about whether Rice ever supervised any of his activities. (Tr. 173.) However, when it was suggested to him that Rice did supervise his activities to the extent reflected in the faxes from Rice assigning Leatherman certain projects, he responded: "Right." (Tr. 174.) Neither Rhea's "Not Really," nor Leatherman's "Never," raise "serious" credibility concerns.

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to the Commission that there had been "no change" in Rice's status with CBI, and concealed from the Commission his consultative role in their affairs. The Licensees also had knowledge of, but failed to disclose, Rice's involvement in at least some programming and personnel matters and management-level activities. Despite this, the Licensees misrepresented that Rice had been "excluded from involvement" in the management and operations of their stations. "[T]he fact of misrepresentation coupled with proof that the party making it had knowledge of its falsity [is] enough to justify a conclusion that there was fraudulent intent." Leflore Broadcasting, 636 F.2d at 462.

192. It is also concluded that the Licensees had a logical reason or motive to mislead and deceive the Commission. Specifically, the Licensees wanted to forestall a Commission inquiry or investigation into the criminal allegations which were pending against Rice, or into the effect those allegations might have upon their character qualifications. In the 1986 Character Policy Statement, the Commission declared that nonbroadcast misconduct which was "so egregious as to shock the conscience and evoke almost universal disapprobation" might warrant immediate "Commission concern." 102 FCC 2d at 1205 n.60. Rice's alleged misconduct clearly fell within that category.29 The Licensees had reported to the Commission on numerous occasions that Rice had been, and would continue to be, "completely insulated and excluded" from involvement in the management and operations of its stations and construction permits, and/or that Rice has had "no managerial, policy, or consultative role" in the affairs of the Licensees. Although those statements might have been accurate during the period of time that Rice was hospitalized, they were no longer true when he began his consultative and management-level activities. However, if the Licensees informed the Commission, directly and unequivocally, about Rice's changed role and his consultative and managerial activities, the Commission would have known that Rice was no longer being "completely insulated and excluded." Such a candid disclosure would have risked the very Commission inquiry or investigation that the Licensees were attempting to avert. See The Lutheran Church/Missouri Synod, 12 FCC Red 2152, 2163 (1997), citing Black Television Workshop of Los Angeles, Inc., 8 FCC Red 4192, 4198 n.41 (1993) ("Intent is a factual question that can be inferred if other evidence shows that a motive or logical desire to deceive exists").

193. The Licensees argue that there could be no intent to deceive because Cox had no knowledge of Rice's personnel, programming, or managerial activities, and Cox had a good faith belief that the Licensees' reports were accurate. Even assuming that Cox lacked this specific knowledge, the Licensees' contention is without merit. The Commission had been informed, after Rice began bis consultative activities, that there had been "no change" in Rice's status with CBI, and Rice's consultative role had never been directly reported to the Commission. However, it is undisputed that Cox was cognizant of, and had authorized, Rice's consultative activities.

29 The Licensees were aware of the 1986 Character Policy Statement since it had been referred to repeatedly in the 7990 Character Policy Statement. See 5 FGC Red at 3252-53. The 1990 Character Policy Statement was cited in LBI's June 14, 1991, "Statement Pursuant to Section 1.65 of the Commission's Rules" which first reported the pending criminal charges against Rice.

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Therefore, since Cox had actual knowledge that Rice's role had indeed changed and that he was engaging in consultative activities, she could not have had a good faith belief that the Licensees' reports were completely accurate.

194. Further, the record reveals that Cox was not as unaware of Rice's undertakings as the Licensees would contend. Thus, Cox knew of Rice's involvement in at least some programming and personnel matters and management-level activities. For example: Rice had sent Leatherman a fax inquiring about sound effects CDs, and Leatherman responded to Cox; Rice had asked Rhea to obtain information on the cost of the Satellite Music Network and Rhea sent that information to Cox, who told him that Rice thought the station could be programmed less expensively by bringing in his (Rice's) own music; Cox stated that Hanks "very well could have" cleared new hires with Rice; Cox questioned Rice about Steel prior to his hiring and, when Steel changed WZZQ's reporting status in R&R. Cox told Rhea that Rice wanted Steel "out of there immediately"; Rice told Cox that he was not pleased with Rhea's motivation of the sales staff and said to her: "[Y]our guy has got to go"; Cox told Rhea at his termination that he was being fired because of Rice's displeasure with the station's financial figures; and Rice stated in his April 1993, letter to Dale A. Palmer that he was following up on Palmer's telephone calls to Cox.

195. Finally, even if Cox did not know the full extent of Rice's participation in the affairs of the Licensees, Rice certainly possessed such knowledge. As the sole shareholder of CMI and CBI, the (then) 67.5 percent shareholder of LBI, and an officer and director of all three corporations, Rice had the ultimate responsibility and duty to ensure that the Licensees' submissions to the Commission were complete, accurate, and truthful. This was especially important here since those reports related to his own activities. However, there is no record evidence that Rice made any attempt whatsoever to live up to his obligations in this regard. Although, as Cox stated, "there were a lot of things going on in Mike Rice's life" at the time, those other things did not render Rice "unable to discern the truth or falsity" of the representations which the Licensees were making concerning his activities. Pass Word, Inc., 76 FCC 2d 465, 506 (1980), affd, 673 F.2d 1363 (D.C.Cir. 1982).

Issue 3: Transfer of Control Issue

196. This issue was specified in order to determine whether there was an unauthorized transfer of control of CMI, CBI, and LBI in violation of Section 310(d) of the Act and Section 73.3540 of the Rules. The issue was premised upon the Licensees' representations that Rice had been excluded from all management, policy, and operational functions of the stations. OSC at paras. 16-17.

197. The findings establish, and it is concluded, that there was no unauthorized transfer of control of the Licensees' stations. As discussed in connection with the conclusions on Issue 2, Rice was never totally isolated and excluded from the management, operations, and affairs of the Licensees' stations. Therefore, there was no abandonment or transfer of control. Moreover, even assuming that Rice had been completely isolated and excluded, the management and

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