The Federal Communications Commission (FCC) recently cracked down on an owner of golf courses. Yes, you read that correctly.
Golf courses-like many types of businesses across the United States-have FCC licenses for radio equipment they use for security, groundskeeping, maintenance, and other internal communications needs. Parties that don't consider these licenses in transactional due diligence risk agency investigations, fines and burdensome compliance program mandates.
The Communications Act generally prohibits anyone from "us[ing] or operat[ing] any apparatus for the transmission of energy or communications or signals by radio" within or from the United States without a license.1 The FCC generally must grant approval before control of a license passes to another party, whether by assignment of the license or transfer of control of the licensee.2 The FCC may consent only if it finds the transaction will serve the "public interest, convenience, and necessity."3 While this requirement may seem an undue burden when the radio equipment in question is a peripheral part of the business being acquired, it rarely takes more than a few weeks for the FCC to consent. Indeed, the agency often acts overnight. But, to secure approval, the parties to the transaction have to apply for it.
The parties here did not.
The Double Bogey
In 2017, Constellation Club Parent, Inc. (Constellation) acquired ClubCorp, the owner or operator of more than 200 golf and country clubs, business clubs, sports clubs, and alumni clubs. These clubs collectively held 108 FCC licenses for radio equipment used in their operations, including for security and internal communications.4 After the transaction closed, Constellation realized that it had obtained control of these licenses without FCC consent.5 Upon learning of this omission, Constellation made corrective filings to come into compliance, explaining that the personnel overseeing the transaction had not known of the approval requirement.
As often happens, the corrective filings led to an FCC investigation, to settle which Constellation agreed to a consent decree in 2019. Under the decree, Constellation had to pay a civil penalty of $24,975 and implement a compliance plan with reporting requirements.
In 2021, Constellation disclosed in one of the required compliance reports that some of its subsidiaries had acquired or sold properties with wireless radio licenses without seeking FCC approval and that Constellation had failed to report this noncompliance as required by the consent decree.6
This time, the consent decree required Constellation to pay a $275,000 civil penalty and imposed a more onerous compliance program with provisions including the following:
- If the compliance officer appointed pursuant to the decree is not an attorney with "demonstrated experience" in the applicable laws, then that person must consult with an FCC regulatory counsel in developing and implementing the compliance plan.7
- Constellation must consult with an outside FCC regulatory counsel regarding its overall compliance with transfer of control laws, and counsel must review all mergers and acquisitions involving FCC licenses, the compliance plan and the required FCC reports.8
- Constellation must supervise consultants that prepare FCC filings.9
- Constellation's standard due diligence checklist must include a review for FCC licenses, filing of necessary FCC applications, and consultation with its licensing consultant and FCC regulatory counsel at least 30 days prior to closing.10
Constellation's story is far from unique. In transactions, companies outside the telecommunications and broadcasting industries regularly overlook the FCC licenses they or their targets hold. Not considering what are often minor pieces of ancillary parts of the business is understandable. But the lapse can be costly, as these recent examples confirm:
- SUEZ S.A. subsidiaries had to pay $104,000 in 2021.
- Subsidiaries of ABB Ltd agreed to penalties of $250,000 in 2020.
- Caesars Entertainment Corporation settled for $127,000 in 2020. (Here, the unauthorized transfers were in connection with the company's bankruptcy reorganization.)
- Marriott International Inc. had to pay $504,000 in 2018.
And that is before one considers the costs of an FCC investigation, implementing a compliance plan and making periodic compliance reports to the agency.
Improving Your Game
Much of what the FCC mandated in Constellation's 2022 consent decree is simply good practice. Constellation likely would not have gotten tangled up with the FCC had it included a review for FCC licenses on its standard due diligence checklist in the first place. If such a review isn't on your checklist, add it now.
While the people at the target who are "under the tent" before a transaction becomes public may not know whether their company has any FCC licenses, let alone have a complete list, experienced FCC regulatory counsel can fill in the gaps by researching the agency's databases.
These simple steps-expanding the due diligence checklist and consulting with FCC counsel-can help you avoid hazards while keeping the transaction on track.
1 47 U.S.C. § 301.
2 See id.§ 310(d); 47 C.F.R. §§ 1.948 (wireless licenses), 5.79 (experimental radio service licenses), 25.119 (satellite space and earth station licenses), 73.3540 (broadcast licenses).
3 47 U.S.C. § 310(d).
4 Constellation Club Parent, Inc., Consent Decree, 34 FCC Rcd 2716, 2720 ¶ 4, 2721 ¶ 7 (EB 2019).
5 Id.at 2720 ¶ 4.
6 Constellation Club Parent, Inc., File No. EB-IHD-21-00032399, Consent Decree, DA 22-536, at 3 ¶ 6 (EB May 23, 2022).In addition, Constellation stated that its licensing consultant had mischaracterized information in FCC filings.
7 Id.at 4 ¶ 13.
8 Id.at 4 ¶ 14.
9 Id.at 5 ¶ 14.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.