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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission Washington, D.C. 20554 In Reply Refer To: 1800C1-KS 98100073 June 22, 1999 Released: June 24, 1999 CERTIFIED MAIL -- RETURN RECEIPT REQUESTED Quetzal Bilingual Communications, Inc. Licensee, Station KURS(AM), San Diego, CA 296 H Street Third Floor Chula Vista, CA 91910 In re: Station KURS(AM), San Diego, CA Dear Licensee: The Chief, Mass Media Bureau, pursuant to delegated authority, has before him for consideration information suggesting that there have been violations of various Commission rules in connection with your principal Jaime Bonilla Valdez's ("Jaime Bonilla") control and operation of this station. Specifically, the information suggests that you transferred control of the station without prior Commission authorization; that you failed to timely file a construction-finance contract, or its subsequent modification and amendment, with the Commission; that you operated the station in violation of its licensed power limits; and that your principal, Jaime Bonilla, violated the statutory limits on alien control of a broadcast licensee, and concealed this fact from the Commission. The information further raised a question of whether, due to the serious and repeated nature of these rule violations, the recent grant of your license renewal application for this station should be rescinded, and the application be designated for evidentiary hearing. Your pleadings responsive to those contentions are also before the Chief, Mass Media Bureau. For the reasons discussed below, we have determined that forfeiture, rather than designation for hearing appears appropriate. Consequently, this letter constitutes a NOTICE OF APPARENT LIABILITY FOR A FORFEITURE, pursuant to Section 503(b) of the Communications Act of 1934, as amended (the"Act"). Background Matters. COBE Laboratories, Inc. ("COBE"), a business creditor of Quetzal Bilingual Communications, Inc.'s ("Quetzal") principal, Jaime Bonilla, filed an "Objection to Renewal Applications and Petitions for Rescission of Operating Authorizations" on December 31, 1997, opposing, inter alia, the license renewal application of Station KURS(AM), San Diego, California. COBE later withdrew that objection pursuant to a "comprehensive settlement" of its legal disputes with Jaime Bonilla. By letter under separate cover, we found that it satisfied the requirements of 47 C.F.R. 73.3588, which governs the withdrawal and dismissal of petitions to deny and informal objections. We remain obligated, however, under Booth American Company, 58 FCC 2d 553, 554 (1976), to consider the merits of the matters contained in COBE's allegations, notwithstanding the private settlement of that dispute. See Stockholders of CBS, Inc., 11 FCC Rcd 3733, 3741 (1995) (subsequent history omitted). For the reasons set forth below, we find that the matters complained of by COBE, considered in conjunction with your response, indicate that you apparently violated the pertinent Commission rules by failing to obtain Commission approval for the licensee's pro forma transfer of control during a bankruptcy proceeding, and that you apparently failed to file timely with the Commission either the September 25, 1991, construction- finance contract, or its subsequent modification or amendment. Despite this, we find no merit to COBE's allegations that the licensee's former principals either abdicated station control or violated the statutory limits on alien control of a broadcast licensee set forth under Section 310 of the Act. In this regard, the record evidence does not support COBE's allegations that the licensee relinquished de jure or de facto control to Jaime Bonilla prior to his naturalization as a U.S. citizen, or prior to Commission approval of the station's transfer of control to an entity controlled by him. We further find no merit to COBE's allegations that you failed to report transactions concerning Jaime Bonilla with an intent to conceal material information from, or to deceive, the Commission; or that you operated the station in violation of its licensed power limits. Finally, we find COBE's claims pertaining to the alleged character defects of your principal, Jaime Bonilla, to be speculative and baseless; they do not raise a substantial or material question of fact concerning your qualifications to be or remain a Commission licensee. Unauthorized Transfer of Control/Abdication of Control/Prohibited Alien Control of KURS(AM). COBE alleges that the former principals of the station's licensee, Quetzal, improperly relinquished control of the station to Jaime Bonilla, prior to receiving Commission consent, in violation of Section 310(d) of the Act. COBE charges that this unauthorized transfer also violated Section 310(b) of the Act because Jaime Bonilla was not a U. S. citizen at the time Quetzal relinquished station control to him. According to COBE, in December 1991, Quetzal contracted with News Baja, Inc. ("NBI"), a company controlled by Oscar and Jaime Bonilla, to sell it 43% of Quetzal's stock in exchange for NBI's financial support to construct and operate the station. Although the 43% share then transferred did not constitute positive control of Quetzal, COBE argues that this nevertheless violated the 25% indirect alien ownership limitation set forth in Section 310(b)(4) of the Act. COBE also claims that the transaction provided NBI with an option to acquire a 51% to 66% de jure controlling share in Quetzal within one year of the station's commencement of broadcast operations, and that the licensee lacked candor in failing to report these matters to the Commission, as required by Sections 73.3613 (filing of contracts), and 73.3615 (ownership reports) of the Commission's Rules. COBE further argues that the December 1991, transaction was conducted in order to install Oscar Bonilla, Jaime's brother, a U. S. citizen and alleged proxy, as President and General Manager of Quetzal. COBE contends that, at that time, the two brothers shared a business address and participated together in other financial ventures, including NBI, and that Jaime Bonilla ultimately acquired de facto control of Quetzal through NBI, prior to Commission approval of the stock transfer in March 1993. In addition, COBE proffers a March 1996, power of attorney executed by Jaime Bonilla wherein he represents he is a "Mexican national," which COBE argues constitutes renunciation of his U. S. citizenship. COBE therefore claims that Quetzal continues to be alien-owned and controlled in violation of the relevant statute. COBE also alleges that when your company entered into bankruptcy in May 1996, it violated the pertinent Commission rules by failing to obtain Commission approval for the licensee's pro forma transfer of control. In response, you claim that Quetzal's de jure alien control never exceeded the statutory limits set forth in Section 310 of the Act. You indicate that prior to Jaime Bonilla's naturalization, NBI held only 13.61% of Quetzal stock. Thus, even assuming, arguendo, that Jaime Bonilla individually owned and controlled NBI, the total degree of resulting alien control over Quetzal would not have exceeded the applicable statutory limitation of 25%. You further argue that Jaime Bonilla did not, at any time, take any legally cognizable act renouncing his U. S. citizenship, and point out that the document COBE cites indicating he was a "Mexican national" referred only to his place of origin, and not to his current citizenship or political allegiance. With regard to the allegation that Quetzal improperly abdicated de facto station control to Jaime Bonilla, you contend that, prior to Commission approval, day-to-day control of the licensee and station operations remained firmly in the hands of existing stockholders and officers, Messrs. Camarillo, Martinez and Mireles. Moreover, because the station did not commence broadcast operations until November 20, 1992, the traditional "touchstones" of station control -- personnel, programming and finances, did not apply. Furthermore, you argue that NBI's principals took no role in Quetzal inconsistent with NBI's status as a lender, and supply documentation relevant to the various transactions between Quetzal and NBI. In addition, you dispute COBE's claim that a local newspaper article concerning NBI's and Quetzal's agreement to "join forces" to "jump start" the station's construction constitutes evidence of any improper relationship between them. Finally, Quetzal's former station manager, Mateo Camarillo, admits that the licensee did not submit the parties' September 25, 1991, construction-finance contract to the FCC within thirty days of execution, in accordance with Section 73.3613(b) of the Commission's Rules. He explains, however, that this was due to oversight, because the station's counsel had failed to specifically apprise him of the rule's requirement concerning this matter. You deny that this failure or omission reflected any intent by Quetzal or NBI to conceal material information from the Commission. Finally, with regard to your company's later bankruptcy, you acknowledge that Quetzal entered debtor- in-possession status in May 31, 1996, and emerged from that status on June 27, 1997, when its Chapter 11 bankruptcy proceedings were dismissed. Because you were unaware of the requirement to seek Commission authorization for this status, you did not file a pro forma assignment application. You contend that in situations where, as here, licensees entered debtor-in-possession status, and then voluntarily dismissed their bankruptcy proceedings without reorganization, but neglected to file the appropriate pro forma application, the Commission has "excused such transfers without sanction." Section 310(d) of the Act prohibits the transfer of control of a station license, and any rights thereunder, without prior Commission consent. See Sections 73.3540 and 73.3541 of the Commission's Rules. There is no exact formula by which control of a broadcast station can be determined. It is well settled that "control," as used in the Act and pertinent Commission rules, encompasses all forms of control, actual or legal, direct or indirect, negative or affirmative, and that passage of de facto as well as de jure control demands the prior consent of the Commission. See, e.g., Stereo Broadcasters, Inc., 55 FCC 2d 819, 821 (1975), citing WWIZ, Inc., 36 FCC 561, 2 RR 2d 169 (1964). Thus, even when a transfer of control results in nothing more than a change in the form of the entity holding the license, and the same individual continues to control the license, the transfer must be approved by the Commission. In the case of an involuntary transfer of control, consent must be obtained within thirty days of the occurrence of the event or legal disability triggering that transfer. See Section 73.3541(b). In ascertaining whether a transfer of control has occurred, we traditionally look beyond the legal title to whether a new entity or individual has obtained the right to determine the basic operating policies of the station. See, WHDH, Inc., 17 FCC 2d 856 (1969) aff'd sub nom. Greater Boston Television Corp. v. FCC, 44 F.2d 841 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971). Specifically, we look to three essential areas of station operation: programming, personnel and finances. See, e.g., Stereo Broadcasters, Inc., 87 FCC 2d 87 (1981), recon. denied, 50 RR 2d 1346 (1982). Furthermore, as noted above, under Section 310(b)(4) of the Act, "if the Commission finds that the public interest will be served by the refusal or revocation of such license," alien companies are barred from having an alien officer, a board of directors in which aliens exceed 25%, or aliens holding or voting more than 25% of the equity interest." See, e.g., Memorandum Opinion and Order, "In the Matter of Request for Declaratory Ruling Concerning the Citizenship Requirements of Sections 310(b)(3) and (4) of the Communications Act of 1934, as Amended," 1 FCC Rcd 12, 15 at n.3 (1986) (alien control of broadcast entities exceeding benchmark requires individualized assessment by Commission). In this case, we find credible your explanation that Quetzal did not improperly relinquish station control to NBI prior to obtaining Commission approval. We further agree that the evidence submitted, considered in conjunction with the relevant chronology, fully supports your claim that the degree of de jure alien control of Quetzal never exceeded the applicable benchmark set forth under Section 310(b) of the Act, and that, in this connection, no statutory or rule violation occurred. With regard to the issue of de facto alien control, we note that the Commission has found questions of potential de facto control raised where alien investors provide substantial construction loans that are made in exchange for stock options or other restrictive resale agreements. See Channel 31, Inc., D.I.P., 45 RR 2d 420 (1979) (question of de facto control found where "virtually all the funding for the acquisition and the operation for the station" provided by alien). Similarly, other indicia of an investor's day-to-day station involvement have been found to raise a question of de facto control. See, e.g., Choctaw Broadcasting Corporation, 12 FCC Rcd 8534, 8542 (1997), citing WGPR, Inc., 10 FCC Rcd 8140 (1995) (question of de facto control may be found where a party supplies the entire funding for acquisition or construction and attempts to exercise a level of control corresponding to that contribution). In this case, however, even assuming, arguendo, that NBI was at one time alien-controlled, it did not provide all of the station's construction or operational financing. In this regard, Quetzal's then-president, Mateo Camarillo, indicates that his firm had invested "close to $1 million" of its own capital during the station's multi-year construction process. By 1991, that process had stalled, and required supplemental funding of $750,000 for completion. Moreover, neither Jaime Bonilla nor any NBI principal appears to have had any direct involvement in Quetzal's day-to-day activities prior to Commission approval of the stock transfer in March 1993. In this connection, the relevant declarations and corporate documents submitted by the parties support your claim that de facto control over the licensee, at all times, remained with Quetzal's existing board and managers. See, e.g., Choctaw Broadcasting Corporation, supra; Data Transmission Co., 44 FCC 2d 935 (1974) (where alien provided substantial construction funding, and protected investment through restrictive resale agreement, but did not supply or control the station's programming, dominate its affairs, or intervene in management prerogatives, no de facto control issue was found). Consequently, we find that COBE does not raise a substantial and material question of fact that you violated the alien-control restrictions set forth under Section 310(b) of the Act. We find, however, that you apparently violated the Commission's rules pertaining to the filing of contracts and the submission of annual ownership reports. In this regard, we note that the original September 25, 1991, construction-finance contract, and its subsequent October 1991, modification contemplated that an ownership change in the licensee would occur, although the agreements do not specify the date that the stock transaction would occur. Nevertheless, these agreements were required to have been filed with the Commission within thirty days of execution, and included in the following annual ownership report, pursuant to Sections 73.3613(b) and 73.3615(f) of the Commission's Rules, but were not. See Complainant's Exhibit 41. These omissions, while indicating negligence, do not reflect an intent to deceive the Commission. You claim that NBI did not acquire substantial equity in the licensee until July 28, 1992, subsequent to Jaime Bonilla's naturalization on July 24, 1992. In support, you point to records arraying the timetable of NBI's stock purchase, indicating that prior to July 24, 1992, NBI's ownership stake in Quetzal never exceeded 14%, and that this stake rose incrementally thereafter, to 20.37%, or 19,000/93,257 shares. The full degree of NBI's stock acquisition was thereafter reflected in your supplemental ownership report submitted August 25, 1992, although it does not appear that the contract materials themselves were submitted until June 8, 1998, when they were included among exhibits filed in response to COBE's complaint. While COBE contends that NBI's acquisition of more than 25% of the licensee's stock occurred much earlier, prior to Jaime Bonilla's naturalization, the complainant's claim is speculative, and contradicted by business record evidence. Consequently, we accept your explanation that the failure to submit the earlier contracts was not an attempt to conceal material information from the Commission concerning the licensee's true ownership, but was instead due to your principals' ignorance of the pertinent Commission reporting requirements. In connection with your company's subsequent bankruptcy filing on May 31, 1996, and the termination of that proceeding in June 27, 1997, we find that you failed to file the pro forma transfer applications required by Section 310(d) of the Act and Section 73.3541(b) of the Commission's Rules, and that an apparent unauthorized transfer of de jure control of the licensee therefore occurred. Moreover, contrary to your contention, we have imposed monetary forfeitures for similar violations. See, e.g., Liability of Pacific Telestations, Inc., DA 98-1513 (MMB July 30, 1998). However, we note that where there has been an intervening license renewal and the violation occurred more than one year prior to the issuance of the notice of apparent liability, as here, Section 503(b)(6) of the Act prohibits the imposition of a forfeiture. See, e.g., Liability of Evergreen Media Corporation, 6 FCC Rcd 5950 (MMB 1991). Consequently, we will admonish you for this apparent rule violation, and caution you to take greater care with regard to future filings of this type. Alleged Operating Power Rule Violation. COBE conducted field-strength measurements of the KURS(AM)'s operations during the period December 10-15, 1997, and alleges that these technical data confirm that the station broadcast at a nighttime power level exceeding its authorized limits, in violation of Section 73.1560(a) of the Commission's Rules. COBE also contends that the station advertised that it broadcasts at power levels it is not authorized to utilize. Noting that the licensee was sanctioned by the Commission in 1994 for failing to reduce its nighttime power level, COBE argues that the recent violation demonstrates the licensee's continuing intent to evade the law, and constitutes a "pattern of abuse." You deny these allegations, and claim that COBE's interpretation of the technical data is flawed and speculative, because the measurements were taken at ill-defined locations and are insufficient. Specifically, you argue that the variations observed in the station's nighttime field-strength were likely caused by skywave propagation from adjacent and co-channel operations, and were not due to any increase in KURS(AM)'s power level. You further claim that, in response to the prior Commission enforcement action concerning this issue, you installed remote control monitoring equipment pre-set to automatically lower the station's nighttime power to the authorized level. Moreover, your operating engineer denies that this system was ever manually overridden or ignored by the station's personnel. You further deny advertising that KURS(AM) operates at any power level other than that specified in its license, and suggest that the undated promotional material COBE submits was actually used by the prior licensee during the station's preliminary marketing campaign in 1987. You point out that, at the time of the station's construction eleven years ago, it was temporarily authorized to operate at the higher power level noted in the materials. Our analysis of the technical evidence submitted in this case supports your contention that COBE's power measurement methodology was flawed and unreliable, for the reasons you have stated. Moreover, we do not believe that the questionable promotional materials constitute proof that you operated the station at an impermissible power level. We note, in this regard, that these materials are undated, and we accept your explanation that Quetzal did not author or distribute them. In view of the foregoing, we find that COBE's allegations concerning this issue are unfounded. Bonilla's Alleged Criminal Record. COBE alleges that your principal, Jaime Bonilla Valdez, has a criminal record in Mexico involving fraudulent activity that casts doubt upon his qualifications to be or remain a Commission licensee. You acknowledge that a criminal fraud complaint was filed against him by a business in Mexico, but provide evidence that no action has been taken against him by the appropriate authorities. In this regard, you contend that the complaint is unfounded and anticipate that it will ultimately be dismissed. Moreover, you argue that it is not a matter of which the Commission may take notice because it has not resulted in a final adjudication, citing the Character Qualifications in Broadcast Licensing ("Character Policy Statement"), 102 FCC 2d 1179, 1205 (1986) (subsequent history omitted). We agree, and find that COBE's allegations concerning this issue are unfounded at this time. Sanction. For the reasons set forth above, we find that a monetary forfeiture is warranted for the apparent violations of Sections 73.3613 and 73.3615 of the Commission's Rules. Accordingly, pursuant to Section 503(b) of the Act, you, Quetzal Bilingual Communications, Inc., licensee of the above-captioned radio station, are hereby advised of your apparent liability for a forfeiture of Three Thousand Dollars ($3,000.00) for your apparent willful, repeated violations of Sections 73.3613 and 73.3615 of the Commission's Rules. In assessing this monetary forfeiture, we have taken into account the nature, circumstances, extent and gravity of the violation, as well as the degree of culpability and the station's prior enforcement history. Section 503(b)(2)(D) of the Act, 47 U.S.C. Sec. 503(b)(2)(D). We further note that the Report and Order "In the Matter of the Commission's Forfeiture Policy Statement and Amendment of Section 1.80 of the Rules to Incorporate the Forfeiture Guidelines," 12 FCC Rcd 17087 (July 28, 1997) ("Forfeiture Policy Statement"), provides for a forfeiture of $3,000 as the base amount for the failure to file required forms and information. You apparently violated Sections 73.3613 and 73.3615 of the Commission's Rules by failing to submit the contract information, described above, pertaining to NBI's acquisition of Quetzal stock, until June 8, 1998. We believe that, where, as here, the required information was not submitted to the Commission until an objection was filed, imposition of the base monetary forfeiture amount is warranted. See, e.g., Liability of KLDT-TV 55, Inc., 8 FCC Rcd 6316 ( MMB 1993), forfeiture reduced, 10 FCC Rcd 3198, 3199 (1995) (and cases cited therein) (failure to file ownership information warrants monetary sanction). In addition, we hereby ADMONISH you for your apparent violation of Section 73.3541(b) of the Commission's Rules for failing to file the required pro forma assignment applications in connection with Quetzal's bankruptcy proceeding during the period from May 31, 1996 until June 27, 1997, for the reasons set forth above. You are further cautioned to take greater care with regard to future filings of this type. In regard to this forfeiture proceeding, you are afforded a period of thirty (30) days from the date of this letter "to show, in writing, why a forfeiture penalty should not be imposed or should be reduced, or to pay the forfeiture. Any showing as to why the forfeiture should not be imposed or should be reduced should include a detailed factual statement and such documentation and affidavits as may be pertinent." 47 C.F.R. Section 1.80(f)(3). Other relevant provisions of Section 1.80 are summarized in the attachment to this letter. FEDERAL COMMUNICATIONS COMMISSION Roy J. Stewart Chief, Mass Media Bureau cc: H. Russell, III G. LaVerne Brooks Howard A. Topel, Esq. Theodore D. Kramer, Esq.