More Auction Lawsuits Unlikely, Attorneys Say
A wave of litigation over incentive auction results is unlikely, attorneys and analysts told us, despite two recent lawsuits connected to the lack of auction payout for a San Mateo, California, noncommercial station. Based on the complaints from the dueling suits filed in San Mateo Superior Court between the San Mateo Community College District and its auction consultant LocusPoint Networks, KCSM-TV’s failure to net an FCC auction payout stems from a mix-up while entering a bid, a pattern unlikely to be repeated elsewhere, said Fletcher Heald broadcast attorney Harry Cole.
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Though it's likely many stations feel they didn’t get what they deserved in the auction, the auction’s great complexity makes it unlikely they’ll be able to show in court that the FCC or some other broadcaster is responsible, said Wiley Rein broadcast attorney Ari Meltzer. The incentive auction structure makes litigation against the FCC over it “a helpless morass,” Cole said.
The suits surrounding KCSM's bid in the auction are based on licensee San Mateo Community College District’s relationship with LocusPoint Networks. LocusPoint and the district entered into a deal before the auction wherein LocusPoint would make payments to the district to keep KCSM afloat until the auction, in exchange for a 36.5 percent share of station auction profit, which were expected to be considerable because of its location, both complaints said. As a broadcast licensee, LocusPoint was prevented by FCC anti-collusion rules from overseeing KCSM’s bids during the auction, and hired PwC, the complaints said. After successfully bidding during several auction rounds, no bid was submitted for KCSM during a round when it was offered $114.5 million by the commission.
Under the rules, stations that didn’t submit a bid were dropped from the auction, with no way back in. LocusPoint says the error was KCSM's, and faults the station for keeping quiet about the error and continuing to collect support payments after it knew no auction funds were going to be forthcoming. KCSM blames LocusPoint and its surrogate PwC for the bid error, and argues the quiet period prevented it from revealing it dropped out of the auction. LocusPoint and PWC “committed multiple negligent failures” by not making sure the station’s bids were submitted, the district’s complaint said. LocusPoint and the San Mateo Community College District didn’t comment.
Most auction participants treated the bidding process extremely carefully and were “wrapped up tight” when it came to getting in bids, making it unlikely such an extreme situation will be repeated, Cole said. That makes similar suits unlikely, Cole said. The very small pool of broadcasters that had a chance for a large auction payout also makes similar lawsuits unlikely, BIA/Kelsey analyst Mark Fratrik told us. Since the clearing target went down to 84 MHz, few stations are in a position to claim they were in line for a large FCC payoff, Fratrik said.
It’s also unlikely broadcasters would go after the commission itself over how the auction proceeded, attorneys said. Previous legal challenges to the auction's structure failed in court, including one by NAB, attorneys noted. Though a challenge by low-power TV broadcaster Free Access and Broadcast Telemedia is set for oral argument May 16 in the U.S. Court of Appeals for the D.C. Circuit, it's not seen as likely to succeed, and drew the same panel of judges that rejected a similar argument from Mako Broadcasting, attorneys said. The auction’s complicated structure makes it likely courts will continue to defer to FCC judgment on the structure of the auction, Cole said. A broadcaster would have to show the FCC violated its own rules somehow in conducting the auction, Meltzer said. That’s difficult to do since much of the way the auction was run is known only to the agency, Cole said. “The FCC is holding a ton of cards and we don’t know what they are.”
The auction’s structure makes it hard for stations to argue other broadcasters are responsible for their lack of auction cash, Meltzer said. Auctions are by nature competitive, broadcasters weren’t allowed to communicate about bidding strategies, and it would be nearly impossible for one broadcaster to bring action against another over auction proceeds, attorneys said. One possible exception involves channel sharing agreements, Meltzer said. Broadcasters that entered such pacts before the auction were able to include terms about how the sharing partners would behave in the auction, he said. If one broadcaster didn’t abide by those terms, possibly dropping out at a lower price than promised, that could be grounds for a breach of contract action, Meltzer said.
If more suits over auction proceeds are in the works, they’re likely to be filed soon, Meltzer said. More likely is future litigation over the aftereffects of the auction, such as the repacking, attorneys said. Broadcasters not vacating spectrum soon enough, or causing complications for the repacking efforts of others, could yield a lot of legal action, attorneys said.