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United States v. Newman

United States District Court, District of Columbia

August 17, 2017

UNITED STATES OF AMERICA, Plaintiff
v.
CESTA D. NEWMAN, et al., Defendants

          MEMORANDUM OPINION

          COLLEEN KOLLAR-KOTELLY, United States District Judge

         In this False Claims Act (“FCA”) case, the government alleges that Defendants Cesta Newman and Newman Broadcasting Inc.[1] wrongfully obtained a “new entrant bidding credit” from the Federal Communications Commission (“FCC”) that reduced the cost of a license for Newman Broadcasting to construct and operate a radio station. To be eligible for this type of credit, an FCC licensee must have limited or no other mass media interests. The gravamen of the government's complaint is that Defendants falsely represented that they were eligible for the credit despite the fact that Cesta Newman was already involved in other radio stations owned by her late husband, John Newman, and that John Newman was the real force behind Newman Broadcasting.

         Before the Court is Defendants' [10] Motion to Dismiss the Complaint. Defendants argue that the government's claims are barred by the FCA's statute of limitations and also that the government failed to satisfy the applicable pleading standards. Upon consideration of the pleadings, [2] the relevant legal authorities, and the record as a whole, the Court DENIES Defendants' motion.

         I. BACKGROUND

         A. The Communications Act and Related FCC Regulations

         Under the Communications Act of 1934 (“Communications Act”), the FCC is authorized to award licenses for rights to use the radio spectrum through competitive bidding. The Communications Act also sets forth certain objectives the FCC is to consider when establishing the bidding processes for those licenses. Section 309(j) of the Communications Act states that the FCC must, among other things, “ensure that small businesses, rural telephone companies, and businesses owned by members of minority groups and women are given the opportunity to participate in the provision of spectrum-based services, and, for such purposes, consider the use of tax certificates, bidding preferences, and other procedures.” 47 U.S.C. § 309(j)(4)(D). Similarly, Section 309(j) states that the FCC should design a system of competitive bidding that promotes “economic opportunity and competition . . . by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women.” Id. § 309(j)(3)(B).

         To further these goals, the FCC established the “new entrant bidding credit.” See generally In the Matter of Implementation of Section 309(j) of the Commc'ns Act - Competitive Bidding for Commercial Broad. & Instructional Television Fixed Serv. Licenses, 13 F.C.C. Rcd. 15920 (1998) (discussing the adoption of the new entrant bidding credit). The implementing FCC regulations provide that “[a] winning bidder that qualifies as a ‘new entrant' may use a bidding credit to lower the cost of its winning bid on any broadcast construction permit.” 47 C.F.R. § 73.5007(a). As relevant to this case in particular, the regulations state that “[a] thirty-five (35) percent bidding credit will be given to a winning bidder if it, and/or any individual or entity with an attributable interest in the winning bidder, have no attributable interest in any other media of mass communications.” Id. As a corollary, the new entrant bidding credit is “not available to a winning bidder if it, and/or any individual or entity with an attributable interest in the winning bidder, have an attributable interest in any existing media of mass communications in the same area as the proposed broadcast or secondary broadcast facility.” 47 C.F.R. § 73.5007(b). “Any winning bidder claiming new entrant status must have de facto, as well as de jure, control of the entity utilizing the bidding credit.” 47 C.F.R. § 73.5007(a).

         B. Public Notice of Auction 62

         On June 17, 2005, the FCC published a Public Notice for the auction of 172 FM radio construction permits in the United States and United States Virgin Islands (“Auction 62”). See generally Auction of FM Broad. Constr. Permits Scheduled for Nov. 1, 2005, 20 F.C.C. Rcd. 10492 (2005). The Public Notice contained a section entitled “New Entrant Bidding Credit.” Id. at 10507. That section stated that “[t]o fulfill its obligations under Section 309(j) and further its long-standing commitment to the diversification of broadcast facility ownership, the Commission adopted a tiered New Entrant Bidding Credit for broadcast auction applicants with no, or very few, other media interests.” Id. The Notice required applicants seeking this new entrant bidding credit to certify on their applications for Auction 62 that they satisfied the eligibility requirements for the credit. Id. at 10509. In accordance with the FCC regulations discussed above, the Notice informed applicants that “[a] 35 percent bidding credit will be given to a winning bidder if it, and/or any individual or entity with an attributable interest in the winning bidder, has no attributable interest in any other media of mass communications.” Id.

         The Notice also provided that “[i]n cases where a bidder's spouse or close family member holds other media interests, such interests are not automatically attributable to the bidder” and that “[t]he Commission decides attribution issues in this context based on certain factors traditionally considered relevant.” Id. at 10508 (citing Clarification of Comm'n Policies Regarding Spousal Attribution, 7 F.C.C. Rcd. 1920 (1992)). Bidders for Auction 62 were “required to fully disclose information on the real party or parties-in-interest and ownership structure of the bidding entity.” Id. at 10513. The Notice also stated that “unjust enrichment provisions appl[ied] to a winning bidder that utilizes a bidding credit and subsequently seeks to assign or transfer control of its license or construction permit to an entity not qualifying for the same level of bidding credit.” Id. at 10509-10.

         C. Defendants' Bid on Auction 62

         Auction 62 commenced on November 1, 2005. Compl., ECF No. 1, ¶ 37. On November 23, 2005, Defendant Cesta Newman bid on the auction on behalf of Newman Broadcasting by submitting a “short-form application” or “FCC Form 175.” Id. ¶ 51. Defendant represented on that application that Newman Broadcasting was a “woman-owned business” entitled to a 35% new entrant bidding credit toward the cost of an FCC radio license. Id. ¶¶ 3, 51.

         On March 10, 2006, Defendants submitted to the FCC a “long-form application” or “FCC Form 301.” Id. ¶ 53. On that form, Defendant Cesta Newman represented that she was the president, director and stockholder of Newman Broadcasting and that Newman Broadcasting's proposed FM facility would not present any issues under the FCC's policies regarding the media interests of family members. Id. Defendant allegedly “certified that no other entity or person had an interest in Newman Broadcasting that would vitiate the defendants' eligibility for designated entity status and a new entrant bidding credit.” Id. ¶ 3. More specifically, Defendants allegedly represented that Defendant Cesta Newman's late husband, John Newman, and his company, Newman Media, Inc., had no involvement or interests in Newman Broadcasting. Id. ¶ 4. Defendant stated:

CESTA D NEWMAN IS PRESIDENT AND 100% STOCKHOLDER OF THE APPLICANT. HER HUSBAND, JOHN R NEWMAN, IS PRESIDENT AND 100% STOCKHOLDER OF NEWMAN MEDIA, INC. NEWMAN MEDIA, INC. IS THE LICENSEE OF TWO RADIO STATIONS THAT SERVE THE SAME MARKET AS THE PROPOSED STATION. THEY ARE WNFB(FM) AND WDSR(AM), LAKE CITY, FLORIDA. NEITHER CESTA OR JOHN HAS ANY INVOLVEMENT OR INTERESTS IN THE MEDIA ENTERPRISES OF THE OTHER.

Id. ¶ 54. The FCC granted Newman Broadcasting's application on May 25, 2006, after receiving payment from the company of an amount equivalent to its gross bid less $910, 700-the amount of a 35% new entrant bidding credit. Id. ¶¶ 57-58. Newman Broadcasting proceeded to construct a radio station with call sign WJTK. Id. ¶ 58.

         The government contends that the representations and certifications on Defendants' applications were false. Id. ¶¶ 3-4. The government alleges that in reality John Newman and his company, Newman Media, had substantial involvement with Newman Broadcasting, and that the Defendants' representations to the contrary were made to avoid Mr. Newman, who already owned multiple radio stations in the area and accordingly would not have qualified for the new entrant bidding credit himself, having to pay the full cost of the license sought. Id. ¶¶ 5, 61.

         The government alleges that “[c]ontrary to the certification made on Newman Broadcasting's Form 301, John Newman was involved in Newman Broadcasting and WJTK during and before the application phase.” Id. ¶ 60. The government alleges that “the Newmans treated WJTK as a family enterprise rather than an independent entity controlled by Cesta Newman.” Id. ¶ 62. The government provides examples of facts supporting its allegations, including that “John Newman and Newman Media were responsible for the physical set up of the radio station, WJTK, ” “John Newman essentially ran . . . Newman Broadcasting's WJTK, ” “John Newman primarily or exclusively made personnel decisions, proposed consolidating sales staff of the separate companies, set advertising rates, and prepared and distributed weekly agendas for the three radio stations, ” “John Newman conducted weekly staff meetings for Newman Broadcasting, which Cesta Newman only occasionally attended, ” “Cesta Newman's involvement in Newman Broadcasting, and its station WJTK, was limited or ‘spotty' -- e.g., she was involved in bookkeeping and participation in certain personnel decisions, ” and “[t]he three radio stations (Newman Broadcasting's WJTK, and Newman Media's WNFB, and WDSR) shared staff and common management and jointly sold advertising.” Id.

         The government additionally alleges that Cesta Newman's representation that she was not involved in the media interests of her husband were also false. The government alleges that she was Vice President and/or Secretary of Newman Media and had “on-going involvement” in that company. Id. ¶ 64.

         After Newman Broadcasting received its license and WJTK was constructed, Defendants allegedly continued to repeat similar false representations regarding Mr. Newman's involvement in Newman Broadcasting in periodic reports submitted to the FCC. Id. ¶ 6. The government contends that Defendants falsely stated in biennial “Ownership Reports for Commercial Broadcast Stations” or “FCC Form 323s” that Cesta Newman and Newman Broadcasting were the only persons with an attributable interest in or control over Newman Broadcasting. Id. ¶¶ 66-67.

         Based on the preceding allegations, the government asserts causes of action under the FCA for false claims (31 U.S.C. § 3729(a)(1)(A)), false statements (31 U.S.C. § 3729(a)(1)(B)), and reverse false claims (31 U.S.C. § 3729(a)(1)(G)), as well as common law causes of action for breach of contract and unjust enrichment. Id. ¶¶ 69-88. In the government's false claims cause of action, it asserts that Defendants' claim for a new entrant bidding credit was fraudulent because “it failed to describe the true nature of Mr. Newman's and Newman Media's involvement and interests in Newman Broadcasting.” Id. ¶ 70. In the government's false statements cause of action, it asserts that Defendants' submissions to the FCC were false records or statements because they “falsely stated the nature of Mr. Newman's and Newman Media's involvement and interests in Newman Broadcasting.” Id. ¶ 76. In the government's reverse false claims cause of action, it asserts that Newman Broadcasting “fail[ed], including through its Form FCC 323s, to disclose the true nature of Mr. Newman's and Newman Media's involvement and interests in Newman Broadcasting” in order to conceal its obligation to return the value of the new entrant bidding credit to the government. Id. ¶ 81. In the government's breach of contract cause of action, it asserts that the FCC and Newman Broadcasting entered into an agreement for the rights to the radio frequencies for WJTK, and Newman Broadcasting breached that agreement by paying the FCC less than what was called for by the parties' agreement. Id. ¶¶ 84-85. Finally, in the government's unjust enrichment cause of action, it asserts that Defendants were unjustly enriched when they received a reduction in the cost of their broadcast construction permit and license to which they were not entitled. Id. ¶ 88.

         Defendants have moved to dismiss the complaint in its entirety. That motion has been ...


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