Sinclair/Tribune Heading to ALJ Could Finish Deal or Point to Further Steps

The FCC's referring a deal to its administrative law judge traditionally has been the kiss of death to a transaction, but some see Chairman Ajit Pai's announcement that he has circulated a draft hearing designation order (HDO) on Sinclair's $3.9 billion buy of Tribune (see 1807160023) as possibly aimed more at stopping the deal as it's currently crafted. It also could put the deal on the back burner for now.

Before Monday was over, it started to become clear that commissioners of both parties would support the draft. Two in addition to Pai are likely to support it and a fourth is signaling that's possible (see 1807160063). Congressional and other critics of Pai also cheered.

An official said Commissioner Brendan Carr voted for the order sending Sinclair/Tribune for hearing before the agency's ALJ. Commissioner Jessica Rosenworcel said she backed it. Commissioner Mike O'Rielly -- a frequent critic of the agency's ALJ process (see 1806220011 and 1707130046) -- said he will support sending Sinclair/Tribune to the ALJ only with "sufficient and defined deadlines" for it to conduct and process a hearing. Pai has faced an inspector general investigation into his actions on rulemakings that benefited Sinclair (see 1803210041).

O’Rielly's and Pai's offices are working on the potential to change the draft HDO so it has deadlines, timelines or the like, an aide to the commissioner noted. The goal is to “get this to the place where there is sufficient structure to support the item,” said O’Rielly Chief of Staff Brooke Ericson. She said HDOs “typically do not have a lot of parameters to the ALJ, and that is something that Commissioner O’Rielly has been calling for.”

Pai and staff didn't appear to get specific buy-in from some other commissioners' offices before announcing the draft, but the chairman and his representatives, as a traditional courtesy, let some other members know of the coming move, an official said. Rosenworcel's wasn't one of the eighth-floor offices getting a heads' up from Pai or his staff about the HDO announcement, said one of her aides. A commission spokesperson declined to comment.

Stock of the two TV-station owners declined throughout the day after the announcement Monday, with Sinclair closing down 12 percent at $29.10 and Tribune dropping 17 percent to $32.12. Tribune declined to comment and Sinclair didn't reply to queries.

'Red Flag'

An HDO "is sort of a red flag to the companies they might be better off not pursuing the transaction," said Public Knowledge Senior Policy Counsel Phillip Berenbroick. A broadcast official said an ALJ referral typically kills deals. The expert said that the HDO could be seen as a self-inflicted wound by Sinclair, suggesting the company could have cured the Tribune transaction in a way that would have made it acceptable, and that any talks with Pai about that approach presumably have happened already and come to nothing. Former Commissioner Michael Copps tweeted that the order "doesn’t mean deal is dead or Sinclair will walk away -- but now would be a great time for them to do that. Public outcry made a real difference here."

"It doesn't sound good for Sinclair," emailed Boston College associate law professor Daniel Lyons, saying Pai's statement that he has serious concerns that the station divestitures could let Sinclair retain de facto control in violation of the law "might suggest that Sinclair hasn't been completely above-board." "The agency is somewhat sensitive about entities playing fast and loose with ownership rules," he said.

No Sinclair Fight?

Some think Sinclair won't try to fight it out before the ALJ. The HDO is "definitely a 'no' [but] it might be more a 'no, not like this,'" said broadcast lawyer Dan Kirkpatrick of Fletcher Heald.

Others see the hearing order as a route for forcing Sinclair to cure the ownership problems or to put off deciding on the transaction until after the agency revamps its media ownership rules later this year.

"It's a way to slow down the process and drag it out a little longer" until after that ownership rules change, said University of Minnesota School of Journalism assistant professor-media law Christopher Terry. He said it's unlikely Sinclair will revamp its plans again with changes in ownership to spinoff stations. But PK's Berenbroick questioned that, saying Pai could have stopped the shot clock instead. Kirkpatrick said Pai could be trying to pressure Sinclair and the agency might still approve the deal if Sinclair is able to find independent buyers for stations without joint sales agreements (JSAs). He said the HDO might lay out how to get around a hearing by amending the applications, or the eighth floor could take the issue back from the ALJ if it's amended.

Companies generally don't want something in writing denying a transaction or signaling it would be denied, meaning Sinclair isn't likely to fight it before the ALJ, said Berenbroick. Withdrawing an application preserves the flexibility to try again later, he said. Gigi Sohn, fellow at the Benton Foundation and Georgetown Law Institute for Technology Law and Policy, said Sinclair is more likely to try to cure the deal by refashioning it, though it likely has talked with the FCC about problems with the deal as proposed and didn't fix them. She said Pai doesn't seem to have a problem with the takeover overall, and she could see the chairman using the order to get Sinclair to move on the problematic areas.

Critics Cheer

“I may be forced to say nice things” about Pai, tweeted Free Press President Craig Aaron, a frequent critic of the chairman. The ALJ referral "proves this fight was never about right versus left but protecting the key principles of our public airwaves -- localism and competition," said Coalition to Save Local Media. “We hope approval delayed is approval denied," said Common Cause. "Sinclair and Tribune should follow the lead of other parties who have had their transactions designated for an administrative hearing and withdraw their applications." Newsmax CEO Chris Ruddy said Pai's decision was nonpartisan and "based on the facts and law."

The HDO is a "welcome and long overdue development," said House Commerce Committee ranking member Frank Pallone, D-N.J., and House Communications Subcommittee ranking member Mike Doyle, D-Pa. The lawmakers last week sought GAO review of how JSAs and other local broadcaster agreements affect FCC public interest goals amid concerns Sinclair is using them to circumvent media ownership rules (see 1807110065). Rep. David Price, D-N.C., called the FCC action a "positive first step" saying critics should continue pressuring Pai to "end the UHF discount and other loopholes." Price and Rep. Jared Huffman, D-Calif., last year filed the Local and Independent Television Protection Act (HR-3478) and their opposition to Sinclair.

"No divestiture or remedy ... would work given Sinclair’s history," the Computer & Communications Industry Association said. It said the HDO should be "the beginning of the end of a proposal that was such a threat to diverse voices, local news and democracy.”

The American Cable Association asked the would-be acquirer to "withdraw the transaction without delay so the FCC no longer needs to devote any of its limited resources to a doomed endeavor.” The deal is "certain to create numerous consumer harms, such as higher retransmission consent fees," ACA said.