28 Months Later: Gray Deal Dumped By Media Bureau

0

Updated at 6pm PT with clarifications/corrections


 

On February 12, 2018, it became known that Gray Television had agreed to acquire a full-power TV station in a market covering a big swath of North Dakota and Minnesota. The deal didn’t come without its controversy, however: If approved, Gray would gain control of the MyNetwork TV affiliate in addition to the DMA’s NBC and CBS affiliates.

Who would’ve thought that Memorial Day Weekend 2020 would bring not only a denial of the deal from the Media Bureau, but a death sentence to the station Gray wanted to buy from Chuck Poppen‘s G.I.G. of North Dakota, doing business as Central Plains Media?


To Our Readers: RBR+TVBR incorrectly reported in its first edition of this story that G.I.G. is a subsidiary of Gray Television. G.I.G. is the licensee of the station in the center of this matter, which intended to sell Gray the station. As such, G.I.G. was given an advance by Gray against the purchase price to cover debt it owned the FCC. Furthermore, a description of Gray Television’s 2013 deal with Hoak Media, based on archival reporting, was inaccurate. RBR+TVBR apologies for the errors.


 

 

In a formal letter released Friday afternoon (5/22) following RBR+TVBR‘s holiday deadlines, Media Bureau Chief Michelle Carey affirmed a March 9 decision by the bureau’s Video Division that cancelled the license of KCPM-27, a MyNetwork TV station licensed to Grand Forks, N.D.

The station, which serves the Fargo DMA, was to have been acquired by Gray from Central Plains Media — a.k.a. G.I.G. — for $255,000 in a deal brokered by Kalil & Co. A $45,000 advance payment was paid by Gray to cover debt G.I.G. owed to the FCC, a Gray representative explained to RBR+TVBR late Tuesday.

With COVID-19 pandemic restrictions swiftly enveloping the U.S., Gray convened its legal partners to construct a formal Petition for Reconsideration. This involved Cooley associate Henry Wendel. Interestingly, Cooley’s partners include former FCC Commissioner Robert McDowell. For G.I.G. and Poppen, Aaron Shainis of Shainis & Peltzman was hired as legal counsel.

The issue facing Gray regarding KCPM: a cancellation of the station’s license due to the automatic expiration provision of Section 312(g) of the Act. Translation: KCPM failed to broadcast any on-air signal across an entire year. Thus, the station’s license is no longer valid.

Gray’s first act to get the FCC’s Media Bureau to reverse the decision involved the filing of a “Comment.” This was problematic: As Carey explained, “no such designation exists in response to petitions for reconsideration in non-rulemaking proceedings.” That said, the Media Bureau treated the Comment as a Petition for Reconsideration that was sequentially dismissed as “untimely filed.” Why? Petitions for reconsideration of the division’s March 9, 2020 letter were required to be filed by April 9, but Gray did not file its Assignment Petition until April 17.

“A petitioner cannot avoid filing deadlines by calling its petition something other than a
petition for reconsideration when it, in effect, seeks reconsideration or review,” Carey said.

This likely pleased Davina Sashkin of Fletcher Heald & Hildreth, who represented Parker Broadcasting of Dakota License LLC, which filed an opposition to Gray and KCPM licensee G.I.G. of North Dakota. Parker Broadcasting is led by Ravi Kapur and owns KRDK-4 in the Fargo market, today a COZI TV affiliate. KRDK is the former KXJB-4, a CBS affiliate; the intellectual property of what was KXJB was acquired in November 2014 by Gray and now appears on KVLY-11.2.

In 2012, Sashkin successfully argued to the Media Bureau that “[a]ccepting such pleadings as a means to reopen long-final Commission actions would undercut the goals of administrative efficiency and finality that underlie the statutory limits on seeking reconsideration as well as fundamental fairness to the litigants involved.”

This, Carey said, extends to a “Supplement” to Gray’s assignment petition filed on May 21 as part of a continued effort to get the Bureau to reconsider the KCPM deletion. That supplement, Carey explained, requests that the Commission “effectuate an executive order” by granting the assignment application. Alas, this too was untimely filed, she said.

TRANSACTIONAL PHANTASM?

While the D.C. lawyers went back and forth across much of the COVID-19 pandemic period, the Media Bureau concentrated its decision on its determination of when KCPM ceased regular transmissions. Gray, and Poppen’s G.I.G., have a different date as to when this transpired — something that makes the very sale of KCPM a questionable one.

As the FCC sees it, KCPM’s license automatically expired on December 16, 2015, because — according to its information — it was either silent or engaging in unauthorized operation since at least December 15, 2014.

G.I.G. said this was not correct, and that KCPM fell silent on January 31, 2017, and took action to resume operations on Jan. 27, 2018, just days before the Gray deal was posted by the FCC as a Form 314 filing.

The Division dismissed G.I.G.’s explanation by claiming it “insufficiently described the actions it took” to restart operations on that 2018 day.

This appears to put the onus on Poppen, and not Gray the broker involved in this transaction, as to whether or not KCPM’s license was endangered due to its questionable operations prior to the asset purchase agreement’s signing.

For example, when asked by the Media Bureau to provide utility bills or proof of payment associated with operating KCPM since January 1, 2013, Poppen-owned G.I.G. contended that “[d]ue to financial constraints, KCPM was operating through the use of a gasoline fueled generator,” where the “gasoline was purchased from various stations” and thus “[n]o invoices were retained.”

In a Letter of Inquiry response submitted roughly one year ago, Poppen-controlled G.I.G. also claimed that it lost access to its licensed site on December 15, 2014 for failing to pay rent and because of a “retransmission consent-related dispute” with the site owner.

The Division further found that G.I.G. had not regained access to its licensed site through at least March 27, 2018.

Fast-forward to April 7, when G.I.G. primarily argued that the Media Division did not consider the “equity and fairness” provision of section 312(g) in its license dismissal.

What did G.I.G. legal counsel Shainis propose? He suggested that a new exception be made for KCPM based on the “Second Thursday” doctrine. This allows for the assignment of basic qualification-challenged stations in certain circumstances.

Shainis suggestion is based on an exception to a rule resulting from the 1964 case Jefferson Radio Corp. v. FCC, in which the Commission adopted a policy that generally prohibits the assignment of a license while basic qualifications issues raised against the licensee remain unresolved, and thus serves as a deterrent to licensee misconduct.

The “Second Thursday” doctrine, an exception to the Jefferson Radio policy, provides that even if a licensee’s basic qualifications are unresolved (i.e. character), the Commission may grant an application to assign the license if: (1) the licensee is in bankruptcy, (2) the assignment will benefit innocent creditors of the licensee, and (3) the individuals charged with misconduct will have no part in the proposed operations and will either derive no benefit from favorable action on the application or derive only a minor benefit that is outweighed by equitable considerations in favor of innocent creditors.

MANDATE ERASE?

On April 17, Parker — whose parent is Major Market Broadcasting and also owns TV stations in Chicago, San Francisco and Orlando — had Sashkin file its opposition to Gray and G.I.G. As far as the KRDK owner was concerned, the expiration of the KCPM license is mandated by statute. Further, she argued on behalf of Parker, the circumstances under which the Commission has provided relief under the “equity and fairness” provision of 312(g) are rare and in no way present here.

Then, there is Parker’s conclusion that Poppen-led G.I.G. has not been completely forthright with the FCC.

Gray subsequently submitted an argument stating that it has “no knowledge of the facts of KCPM’s operation from 2014-2018 and takes no position” in the Media Division’s assertion that it ceased operations in 2014.

[Editor’s note: an earlier version of this story incorrectly referred to G.I.G. as a Gray subsidiary and intended to purchase the station.]

Gray then played up the fact that KCPM’s reinstatement would preserve the only commercial TV station licensed to Grand Forks and “provide the additional potential public interest benefit of Gray investing in KCPM’s news operations during the unprecedented COVID-19 health crisis.”

It also cited multiple benefits that would accrue from common ownership of KCPM and its KVLY-11 in Fargo — arguments likely presented at the time of the February 2018 asset purchase agreement’s filing with the FCC.

Ultimately, the Media Bureau denied the requests of Poppen’s G.I.G. and Gray Television.

“After careful consideration of the G.I.G. Petition and the Assignment Petition, we
conclude that no basis exists for granting reconsideration of the Division’s letter decision,” Carey declared.

What’s next for Gray? “We received the Bureau’s decision and are reviewing it carefully,” said Kevin Latek, Chief Legal & Development Officer at Gray.

GOING TOO FAR IN FARGO?

While KCPM’s history in the years prior to its intended 2018 sale to Gray is in question, Gray’s control of what would have been four broadcast TV services — but two full-power stations — is another matter of discussion among some market observers.

Gray’s Fargo operations began with the November 2013 acquisition of NBC affiliate KVLY-11 as part of a transaction that saw it acquire all of the former Hoak Media stations. That deal sent the former KXJB-4 to Excalibur Media, described by RBR+TVBR at the time as a partner corporation.

To avoid the FCC’s scrutiny over potential local ownership cap violations, seen through the industry’s use of shared services agreements, Gray in June 2014  retained the brokerage arm of the Minority Media and Telecommunications Council (MMTC) to identify a multicultural buyer for what was KXJB-4. This action saw Major Market subsidiary Parker emerge as the winner of the facility, but not the programming. Gray kept the intellectual property — the call letters and CBS affiliation — and placed it on KVLY-11’s DT2 signal. It then added Fargo DMA-based KXJB-LD 30. This facility retains its “KX4” branding, while KRVK relaunched with digital multicast network COZI TV.

At no time did Gray operate KXJB via an LMA; there was never any claim or opposition to the transaction suggesting that Hoak or Gray ever had de facto control over KXJB.

In addition to CBS and NBC on KVLY, Gray operates a MeTV affiliate on KVLY-DT3 in Fargo.


Archival reporting by Carl Marcucci.