Daniel H. Overmyer

In 1947, Overmyer opened his first warehouse in Toledo and later grew his warehouse chain to Akron and Canton, Ohio. In the 1960s, Overmyer founded the D. H. Overmyer Company, Inc. (an Ohio corporation) as a holding company for warehouse subsidiaries throughout the United States, Canada, and Europe, with 350 warehouses and 32 million square feet of space.[1]

In 1963, Overmyer turned his attention to television; on April 15, the Federal Communications Commission (FCC, Commission) announced that he, as an individual rather than under a corporate name, applied for Toledo's first ultrahigh-frequency (UHF) television station on channel 79—the only commercial UHF channel allocated by the FCC to Toledo (the term Commission can refer to either the Federal Communications Commission's seven commissioners or the entire government regulatory agency).[6][7] Toledo had two commercial very high frequency (VHF) stations: CBS affiliate WTOL-TV channel 11 and ABC affiliate WSPD-TV (now WTVG) channel 13; the stations shared NBC programming.[8][9]

UHF television stations were a speculative investment partially because of the low percentage of UHF-equipped TV sets: in 1963, only 7.3 percent of TV households could receive UHF broadcasts.[10] However, the All-Channel Receiver Act, signed into law by President John F. Kennedy on July 10, 1962, would gradually increase the proportion of UHF-capable TV receivers: all sets shipped in interstate commerce after April 30, 1964, would have to receive UHF and VHF television stations.[11] The All-Channel Receiver Act was passed in response to the large-scale failure of UHF-TV in the 1950s, which was blamed on decisions made by the FCC when this frequency band was made available for television broadcasting in 1952.[12][13][14][15][16][17] After the new law requiring UHF capability for receivers, the FCC's policy encouraged the rapid expansion of UHF television stations.[18][19][20][21]

Producers Incorporated and Springfield Television Broadcasting Corporation also filed applications for channel 79.[22][23] In February 1964, the FCC announced a comparative hearing would be necessary before awarding the construction permit.[24] On March 2, 1964, Springfield Corporation petitioned the FCC to add an issue to the hearing questioning Overmyer's financial qualifications; it claimed the letters from the banks in support of loans were not binding commitments to provide specific sums of money, and the warehouse company had inadequate funds to make loans to the communications company to construct and operate the TV station. On April 29, 1964, the FCC denied the petition to add these considerations to the proceedings and said Overmyer had already satisfied the financial qualifications requirement.[25] In 1968, during hearings held by the House of Representatives, these financial qualifications were examined in greater detail. In September 1964, Overmyer agreed to pay the out-of-pocket expenses of both competitors to withdraw their applications.[26]

On March 11, 1965, the FCC awarded Overmyer the construction permit for channel 79.[27] The call letters were WDHO-TV, based on Overmyer's initials.[28][29] Overmyer received FCC approval to change from channel 79 to 24. On April 28, 1966, Overmyer applied to the FCC to change the station's ownership from himself as an individual to D. H. Overmyer Telecasting Company, Inc. WDHO-TV began operation on May 3, 1966, as an independent station with no network affiliation.[30][31][32][33] WDHO-TV lost $1.3 million during its first two years of operation.[34]

In June 1964, Robert F. Adams, executive vice president, announced the formation of the D. H. Overmyer Communications Company, Inc., headquartered in New York City. The privately held company, owned by Overmyer, sought the full complement of TV properties allowed by FCC rules: an owner was limited to seven TV stations—only five VHF.[35][36]

On the following dates in 1964, the FCC announced Overmyer filed applications to purchase the construction permits of three nonoperational UHF-TV stations from existing owners: August 17, 1964, dark station WATL-TV channel 36 in Atlanta (operated 1954–55 as WQXI-TV); September 2, 1964, WNOP-TV channel 74 in Newport, Kentucky, in the Cincinnati area; and on November 16, 1964, KBAY-TV channel 20 in San Francisco.[37][38][39] WNOP-TV and KBAY-TV had never been constructed.[40][41][42][43][44][45][46] On the following dates, the FCC also announced Overmyer's applications for construction permits for new UHF stations in three markets: October 21, 1964, channel 55 in Stamford, Connecticut; November 10, 1964, channel 29 in Dallas; and February 12, 1965, channel 17 in Rosenberg, Texas, in the Houston area.[47][48][49] Overmyer also requested a waiver from the FCC's rule limiting ownership to seven television stations. If approved, the eighth station would be the transfer of the construction permit for UHF dark station WAND-TV, which operated during 1953–54 as WKJF-TV channel 53 in Pittsburgh (construction permit transfer application announced by FCC on February 12, 1965).[50][51] After the FCC denied his waiver request, Overmyer withdrew the application for the Stamford, Connecticut station on May 11, 1965, and the WAND-TV transfer application was resubmitted on May 18, 1965.[52][53][54]

On the following dates in 1965, the FCC announced the approval of several of Overmyer's applications: WNOP-TV in Cincinnati on March 10, WATL-TV in Atlanta on May 12, WAND-TV in Pittsburgh on July 28, Houston on August 12, and KBAY-TV in San Francisco on October 20 (Overmyer held 80 percent[55]).[56][57][58][59][60] The FCC adopted a new UHF allocation table on June 4, 1965, that moved the Rosenberg, Texas, channel from 17 to 58, so Overmyer's application was approved for the new channel.[61] Overmyer's ownership interest in KBAY-TV differed from the other stations because the owner Sherrill C. Corwin—chairman and owner of Los Angeles-based Metropolitan Theatres Corporation—kept 20 percent of the stock in the station. Overmyer held an option to purchase Corwin's stock interest between the forty-ninth and sixty-third months after the station started operation.[62]

Overmyer's Dallas application was contested by two other applicants, Grandview Broadcasting Company and Maxwell Electronics Corporation. The FCC scheduled a comparative hearing for March 14, 1966, for the Dallas construction permit. Grandview Broadcasting withdrew its application, leaving Overmyer and Maxwell Electronics as the remaining competitors.[63][64] In December 1966, the FCC agreed to delete channel 29 and open channels 33 and 27 to allow both remaining applicants an opportunity to receive construction permits.[65] Maxwell Electronics was awarded channel 33; on October 1, 1967, KMEC-TV began operation. Overmyer changed his application to channel 27 but had to accept the possibility of competing applicants. On March 14, 1967, the FCC announced that the McLendon Corporation, partially owned by Gordon McLendon, had applied in competition with Overmyer for channel 27 in Dallas.[66] McLendon Corporation held KLIF-AM and KNUS-FM in Dallas, along with several other radio stations and nonbroadcast companies. After subsequent financial difficulties, Overmyer withdrew his application for the Dallas station, which the FCC deleted on October 17, 1967.[67][68] On December 13, 1967, the FCC awarded McLendon the channel 27 construction permit.[69]

WDHO-TV was owned by D. H. Overmyer Telecasting Company, Inc., while Overmyer's other stations were incorporated separately as subsidiaries under the D. H. Overmyer Communications Company, Inc.[70]

KEMO-TV San Francisco:

• D. H. Overmyer Communications Co., Inc., a California corporation
  

WSCO-TV Cincinnati:

• D. H. Overmyer Broadcasting Co., Inc., an Ohio corporation
  

WECO-TV Pittsburgh:

• D. H. Overmyer Communications Co., Inc., a Pennsylvania corporation
  

WBMO-TV Atlanta:

• D. H. Overmyer Communications Co., Inc., a Georgia corporation
  

KJDO-TV Houston:

• D. H. Overmyer Broadcasting Co., Inc., a Texas corporation

The call letters chosen for the stations were the initials of Overmyer's family members.[71] In the fall of 1965, extensive purchases of broadcast equipment began for the TV stations.[72][73][74][75] In 1966, a $3 million order was placed to purchase station programming.[76] Sites had been established for most of the stations by late 1966.[77] Construction of the stations in Atlanta and Pittsburgh was delayed because of difficulty finding suitable sites for the tall towers needed for the antennas.[78][79] Overmyer applied to the FCC, requesting a change to the Cincinnati table of allocations moving channel 74 to 19. On February 9, 1966, the FCC adopted the Fifth Report and Memorandum Opinion and Order, changing the channels of many UHF allocations, including granting Ovemyer's request for Cincinnati.[80] Overmyer's application to the FCC to change the Rosenberg, Texas, channel from 58 to 45 was granted on November 2, 1966.[81] A report made in January 1967 documented the state of construction for the TV stations:[82][83]

KEMO-TV Channel 20, San Francisco:

• A transmitter site lease on San Bruno Mountain was completed.
  
• The transmitter building construction had been completed.
  
• Transmitter installation was in progress.
  
• The antenna was under construction, with delivery expected in April 1967.
  
• The tower had been delivered but not erected.
  
• A studio building at 2500 Marin Street in San Francisco was leased and about to undergo remodeling.
  

WSCO-TV Channel 19, Cincinnati:

• A transmitter site on Bald Knob in Cincinnati had been purchased.
  
• Transmitter building construction had been completed.
  
• The transmitter had been delivered but not installed.
  
• The antenna had been constructed but had not been delivered. It would be installed in June 1968.[84]
  
• The tower was constructed but not delivered; it would be erected in April 1967.[85][86]
  
• A studio location at 1150 West Eighth Street in Cincinnati was chosen, but no lease had been signed.[87][88]
  
• Remodeling of the studio building had not started.
  
• Studio equipment had been delivered and was in storage.[89]
  

WECO-TV Channel 53, Pittsburgh:

• A site for the transmitter and studio using the original WENS-TV channel 16 building on Ivory Avenue in Pittsburgh had been selected.[90][91][92][93]
  
• Negotiations to purchase the site and building were underway.
  
• Some equipment had been delivered.
  
• No construction had started.
  

WBMO-TV Channel 36, Atlanta:

• A site for the transmitter at Briarcliff Road and Shepherds Lane in Atlanta had been selected but not yet leased from the Shepherd Construction Company.[94]
  
• A site for the studio (former Shepherd family home) at 1810 Briarcliff Road in Atlanta was under negotiation, but no lease was signed.[95]
  
• Some equipment had been delivered.
  
• No construction had started.
  

KJDO-TV Channel 45, Houston:

• No final studio or transmitter sites were chosen; a tower location land purchase from Texaco Corp. was in discussion.
  
• No equipment had been delivered.
  
• No construction had been started.
  

WDHO-TV in Toledo had been the only station to go into operation.

In the summer of 1966, Overmyer discovered the contractor managing construction of his warehouses was in financial difficulty. Payments from the Green & White Construction Company, Inc. to the subcontractors were unduly slow; in October 1966, liens were placed on the unfinished buildings.[96] All work ended, and no outside funding sources were found to continue construction. Without legal obligation, D. H. Overmyer Company, Inc. (an Ohio corporation) guaranteed the $5-$6 million debt assumed by its subsidiaries from the Green & White Construction Company.[97][98] Taking on the liability removed the liens, and construction resumed on the uncompleted buildings. However, the increased obligation restricted the funds available to finance further growth and to build TV stations. The original plan was for the warehouse company's profits to aid in constructing the TV stations and meet their early operational deficits.[99] Overmyer began to repay the debt early to resume the warehouse company's expansion. Several properties were sold to raise capital, and profits were redirected to pay the balance due, with interest, over three years. Overmyer sought a business partner after deciding he needed help to finish the development of the TV stations.[100]

Overmyer sought the services of the Philadelphia investment firm Butcher and Sherrerd to find a partner or investor. Joseph L. Castle, an employee and later a partner in Butcher and Sherrerd, thought that the television construction permits afforded the best opportunity to raise funds. Castle was also a stockholder in the Philadelphia UHF station WPHL-TV and believed that combining it with the Overmyer permits into a new enterprise could take advantage of economies of scale and benefit from the experience of the Philadelphia station's owners.[101][102][103][104][105][106][107][108]

Castle arranged for A.V.C. Corporation (AVC) and Overmyer to begin discussions about the sale of the permits.[109] In 1963, the American Viscose Corporation (Avisco), a manufacturer of industrial fibers, sold its manufacturing operations to the FMC Corporation; however, its investment portfolio was not included in the sale. The American Viscose Corporation changed its name to the A.V.C. Corporation and was headquartered in Wilmington, Delaware; it was a publicly traded investment firm with its stock on the American Stock Exchange. The manufacturing operations of American Viscose continued under its name and became a division of the FMC Corporation.[110][111][112]

In March 1967, Overmyer negotiated with AVC to sell an interest in five of his construction permits. None of the stations involved in the sale had been placed in operation. Overmyer agreed to sell 80 percent of the stock in each of his subsidiary corporations that held the construction permits for Atlanta (WBMO-TV), Cincinnati (WSCO-TV), San Francisco (KEMO-TV), Pittsburgh (WECO-TV), and Houston (KJDO-TV). AVC wanted to purchase total ownership of the construction permits but was turned down by Overmyer during the sale negotiations.[113] The consideration for the stock was 80 percent of the out-of-pocket expenses permitted by the FCC that Overmyer paid to get and develop the permits, but not to exceed $1 million. Overmyer insisted on a $3 million loan as a condition for the stock sale to AVC; in response, AVC included an option in the contract to purchase the remaining 20 percent of the stock in the stations and received the assignment of Overmyer's option to purchase Corwin's 20 percent stock in KEMO-TV.[114]

AVC and Overmyer signed the contracts for the Stock Purchase and Loan Agreements to transfer control of the Overmyer subsidiary corporations to AVC on March 28, 1967.[115] AVC paid a $1 million down payment to Overmyer pending FCC approval of transferring control and the amount of claimed out-of-pocket expenses. Howard Butcher III, a partner in Butcher and Sherrerd, joined the board of directors of AVC Corporation on May 1, 1967.[101][116] On May 3, 1967, AVC made the first $1.5 million of the $3 million loan to Overmyer; the last half of the loan would be made at the closing of the sale for the permits.[117][118][119]

After signing the sale agreement with Overmyer, AVC formed a wholly owned subsidiary, the U.S. Communications Corporation (USCC, U.S. Co.), headquartered in Philadelphia (incorporated in Wilmington, Delaware).[120][121] On June 6, 1967, AVC assigned to U.S. Communications Corporation all the contractual rights and options negotiated with Overmyer in the March 28, 1967, agreement.[122] On June 8, 1967, AVC arranged a merger of the Philadelphia Television Broadcasting Company (owners of WPHL-TV) into the U.S. Communications Corporation; if the FCC approved, control of six stations in the top fifty markets would be made to a single owner.[123] In 1967, the American Research Bureau (ARB) ranked the size of the TV viewing audience for the six cities using net weekly circulation: Philadelphia, 4; San Francisco, 7; Pittsburgh, 9; Cincinnati, 16; Atlanta, 19; and Houston, 25.[124] Butcher and Sherrerd would receive 7937 shares of stock in U.S. Communications Corporation—1.5 percent of the company—as payment for their services in arranging the merger and acquisition.[125][126] Castle would exchange his interest in WPHL-TV for 2000 shares of U.S. Communications Corporation stock (0.37 percent of the company).[127][128] If the FCC allowed the sale, U.S. Communications would control the five former Overmyer subsidiaries and own all the stock in a newly formed subsidiary corporation (PTBC Inc.) holding WPHL-TV.

On June 30, 1967, the FCC received Overmyer's applications to sell 80 percent of the stock in each of his five subsidiary corporations that were the permittees of the construction permits.[129] A majority of the FCC commissioners voted to approve the Overmyer and WPHL-TV transfers to U.S. Communications Corporation on December 8, 1967.[130][131][132][133][134][135] WDHO-TV in Toledo was not involved in the sale and remained wholly owned by D. H. Overmyer Telecasting Company, Inc. The names of the Overmyer permittee corporations where control was transferred were changed to reflect the majority ownership by U.S. Communications Corporation.[136]

Consent of the commissioners to the transfers was controversial because of waiving their interim policy and proposed rule concerning Multiple Ownership of Television Broadcast Stations (Docket No. 16068 FCC 65-547 and 65-548)—the so-called Top Fifty Interim Policy—which was adopted on June 21, 1965.[137] In addition, transferring control of the construction permits from Overmyer to U.S. Communications was questionable because the sale price and option agreement might violate the FCC policy prohibiting a profit in the transaction. The Top Fifty Interim Policy was applied while undergoing public comment before possible adoption as a rule. The policy resulted in intense opposition from the broadcast industry by limiting ownership to seven TV stations (not over five VHF), with three (only two VHF) allowed in the top fifty markets.[138] The policy intended to promote a diversity of ownership and competition in the largest media markets.[139][140] The regulation would not have forced existing group owners to divest holdings that exceeded the new limits. The Top Fifty Interim Policy required a hearing if an application's approval would allow ownership exceeding the policy's limits; however, a waiver was possible if the applicant showed that an exemption served the public interest. The FCC's standard of a qualifying presentation was a "compelling affirmative showing that the grant of the application was justified."[141][142] Overmyer's permits were awarded by the FCC in 1965 under the previous guidelines that limited the applicant to seven TV stations (not over five VHF) with no restriction on market ranking. Before approving the Overmyer transfer, the Commission had waived hearings in all eight cases where the Top Fifty Interim Policy applied.[143][144][145][146]

Approval by the Commission of transferring twice the number of construction permits allowed by the Top Fifty Interim Policy was addressed by FCC Commissioner Kenneth A. Cox (D-WA) in his dissenting statement:

The majority's [Commission's] action here further erodes our interim policy against concentration of control of television facilities in the top 50 markets, but even more serious are the blows it strikes at our long established policy against allowing the holder of a construction permit to sell it for more than the out-of-pocket expenses reasonably incurred in acquiring the permit. As a consequence, I view this action as one of the most serious instances of the Commission's inability or unwillingness to discharge its regulatory functions that I know anything about.[147]

The FCC had a long-standing policy limiting compensation in the sale of construction permits—as opposed to operational TV stations—to out-of-pocket expenses made in obtaining the permit and those related to the station's construction:

There is no FCC out-of-pocket expense rule with respect to the transfer or assignment of CP's [construction permits]. There is, however, an FCC out-of-pocket expense policy relating to this subject, which is based on the language of section 311 (c) (3) [of the Communications Act of 1934] and enunciated in decisions of the Commission. Administered by the FCC on an ad hoc basis, it is designed to limit the consideration which can be received by the transferor of a CP to (a) expenses legitimately and prudently expended by such transferor in obtaining a permit, such as costs of professional services, travel, printing, market research, surveys, etc.; and (b) funds, spent after granting of the CP and prior to licensing, for acquisition of land, buildings, equipment, film rights, furniture, and fixtures. However, the Commission has neither defined out-of-pocket expenses nor provided any regulatory guidelines for classifying the numerous kinds of expenditures which might be reimbursable to a transferor.[148]

The FCC wanted to prevent applicants from obtaining permits and then disposing of them at a profit without providing the promised broadcast service. In the Overmyer construction permit transfers to U.S. Communications, the FCC approved an expense claim of $1,331,900.00, so—because of the price limit of the contract—the payment for the 80 percent stock in the five permittee corporations was $1 million, which had been paid at the signing of the sale agreement.[149] Half the expenses were submitted using documented evidence proving Overmyer's communications company incurred them in furthering the permits. The other half lacked documentation and was based instead on an unusual approximation method the FCC had never encountered.[150] The undocumented portion of the expenses was for services provided for the five permittees by Overmyer enterprises other than the communications company. Although these expenses occurred from July 1964 through March 1967, the construction permit transfer application filed with the FCC stated usable records were only available from September through December 1966.[151][152][153]The Overmyer Company, Inc. managers created a formula to approximate the undocumented portion of the out-of-pocket expenses using the records from the four-month base period:

1. An estimate for each employee's time spent on communications company activity during the base period was divided by the total time worked—by that same employee—during the same period. The result was a percentage of that employee's time working for the communications company during the base period.
   
2. The percentage from step 1—unique for each employee—was multiplied by their salary paid during the base period.
   
3. The portion of each employee's salary from step 2 was added to those (calculated similarly) of all employees in their particular department.
   
4. The sum found in step 3 was divided by the total salaries paid to all employees in that department during the base period, forming a percentage applicable to communications services performed by the entire department.
   
5. The percentage found in step 4—unique for each department—was multiplied by the total expenses of that department accrued during the base period.
   
6. The expenses found in step 5—calculated for all departments—were added to form the total expenses attributable to the communications company's activities performed by the non-communications Overmyer companies during the base period.

The base period expense found in step 6 was used to approximate the undocumented portion of the out-of-pocket costs outside the base period where no usable records were available. Estimates of TV development efforts during several intervals outside the base period were determined relative to those during the base period. These calculations resulted in several relative activity factors used to extrapolate a percentage of the base period expenses to apply for each designated interval outside the base period. The sum of the costs of the base period and the intervals outside the base period formed the value of services provided for TV development by Overmyer’s firms apart from the communications company from July 1964 through March 1967. A deduction was made to account for communications activities unrelated to the transferred permits, and the result was the reimbursable portion of the out-of-pocket expenses submitted to the FCC.[154][155] Acceptance of this unusual method by the FCC with the lack of evidence supporting half of Overmyer's costs illustrated weaknesses in the out-of-pocket expense policy.[156][157][158] In his dissenting statement, Cox commented on the expenses submitted in the application:

We have been quite strict in holding sellers of [construction] permits to their actual expenses, and have often required the elimination of improper or doubtful items. Here, however, the majority [of the Commission] has allowed Overmyer to claim credit for more than twice the amount spent directly by or for the five permittees. The balance ($666,514) represents unreimbursed staff services furnished the permittees by other Overmyer companies, including legal, accounting, payroll, personnel, messenger, public relations and other services. The method of calculating this sum, as outlined by our staff, seems very complicated and open to possible abuse. Certainly it represents a novel approach which I think would have to be tested in a hearing before it could be accepted.

But even if we assume that Overmyer has actually reasonably spent $1,331,900 in acquiring the five permits here involved, I think this transaction still violates fundamental policy. If one accepts this figure, this would mean, under our normal practice, that Overmyer could sell all his permits outright for $1,331,900. Certainly that would be a clean transaction raising a minimum of questions. But that sum apparently is not large enough to take care of his other financial problems. If he is to be able to use the permits to resolve his difficulties, he must arrange matters so that he can produce a substantially larger amount in the immediate future. . . . 

It seems to me that the realities of the situation are as follows. I think Overmyer is willing to dispose of 100% of his construction permits, but not for $1,331,900 which our policies would allow him to realize—if one accepts his claims as to out-of-pocket expenses. I think he is willing to sell out completely for $4,000,000. On the other hand, I think AVC would much rather acquire all of Overmyer's interest in the permits, and that it is willing to pay $4.000,000 to achieve this result. After all, I know of no other way in which AVC can acquire five authorizations in the top 25 markets for so little—or, indeed, at all.[159]

Cox's comment on the unlikelihood of AVC acquiring a block of construction permits (or operational stations) outside of this transfer illustrated an unusual effect of the law regulating station trading in the Communications Act of 1934. In transfers of construction permits and operational stations, the seller chooses a buyer, and the FCC is forbidden from considering other purchasers as more desirable. Essentially, the FCC only approves or denies that transaction. In later congressional testimony, Cox stated that

our option is either to approve the transferor's selection of the transferee and find that there is nothing contrary to the public interest, or to say that we cannot make that finding without a hearing, and then go into a hearing. But in that hearing the issue would not be whether there might be others who would serve the community better. The issue would be whether there is something disqualifying this transferee, or something about this transaction which makes it contrary to the public interest.[160]

The FCC prefers local ownership and management when granting new construction permits. If multiple applications are submitted for a TV channel allocation, the FCC must hold a comparative hearing; the merits of the applicants are examined to select the best candidate to serve the public interest. AVC had no local connection in any markets involved in the Overmyer construction permit transfers. Without this block transfer from an existing permittee and assuming channel allocations were available in these markets, AVC would probably encounter comparative hearings with multiple local applicants when applying for these five construction permits. After considerable expense and delay, they might not be granted any construction permits, and getting six in the fifty largest markets would be inconceivable.[161] The restriction of not examining alternative transferees in station and construction permit transfers created many situations where an assignment was made to a party who probably would not have prevailed in a comparative hearing.[162]

The sale included a $3 million loan to several warehouse subsidiaries of D. H. Overmyer Company, Inc. (Ohio) and an option for U.S. Communications to purchase the remaining 20 percent of the TV stations at a price up to but not exceeding $3 million. If the option agreement were exercised, the contract called for the purchase price to apply against the $3 million loan principal owed by Overmyer. Cox's dissenting statement asserted that if U.S. Communications exercised the option, the intention was that Overmyer would not have to repay the loan, which would make the $3 million part of the purchase price:

I think that AVC is willing to meet Overmyer's terms—but they were no doubt told that the Commission would not approve sale of the permits for so high a price. The result, I think, is this elaborate transaction now before us. If I am right in my appraisal, consider how things will work out. Overmyer will get $4,000,000 to meet his immediate and urgent needs—in fact, he has already received $2,500,000 of that sum. While this is cast partially in the form of a loan, I don't think Overmyer will ever repay the $3,000,000 which he is purportedly borrowing—and I don't think the parties ever contemplated that he would. Instead, having received $1,000,000 outright for 80% of his interest in these permits, Overmyer is getting an additional $3,000,000 for the remaining 20%—a mark-up of 12 to 1 for this last fifth of his present holdings. I think this represents profiteering from the sale of permits in violation of our past policies and practices. I think this entire complex transaction has been carefully designed to achieve exactly this heretofore prohibited result. . . . 

. . . In fact, for all practical purposes the parties have made a present contract for the complete sale of Overmyer's five construction permits for $4,000,000—they have simply deferred part of the transaction for up to four years in an attempt to get around our policy of limiting the price for permits to the holder's reasonable expenses in acquiring them. In other words, I think the parties bargained for the sale and purchase of these permits as if our policies didn't even exist; then, having agreed to the overall price, they sought to fit their transaction to the policies which we have been following for years. The result is to violate the spirit of our rules in a way which I find intolerable. . . . 

. . . I object strenuously to the result which is to be achieved through these business arrangements. I think we have to look underneath the surface to the real nature of what the parties are accomplishing. I don't think the [FCC] staff ever reached that stage. [163]

Cox later testified in Congress criticizing the submission of out-of-pocket expenses and the loan and option agreement, claiming they violated an FCC policy by providing a profit. He said that a hearing should have been held to examine these matters more closely.[164]

FCC Commissioner Robert T. Bartley (D-TX) issued a dissenting statement concurring with the views expressed by Commissioner Cox:

In light of Commissioner Cox's dissenting statement, it is inconceivable to me that a majority of the Commission could vote to grant its consent to this transfer.

If this case should become precedent, I think the Congress may as well repeal Section 310(b) of the Communications Act [of 1934] and recognize that it is public policy that, once a [construction] permit is granted, it can be bartered at the convenience of the private parties, without placing on the Commission any responsibility for making a determination that the transfer is in the public interest.

The policy against profiteering from [construction] permits is one which has been followed by this Commission prior to the incumbency of any present member.

The [Top Fifty] Interim Policy, worked out after years of effort, had as one of its prime objectives the prohibition against sales of blocks of stations. Some of us in the majority believe that this would lead eventually to less concentration of the medium into fewer and fewer hands—even in the cases which were grandfathered in.

If I sense a trend in policies of multiple owners correctly, it will not be long before the antitrust laws will come into play, which will result in the divestiture by some of the grandfathered groups.

If there is a majority of the Commission prepared to scrap the Interim Policy, it should be done forthrightly and not on a case-to-case basis.[165]

FCC Commissioner Nicholas Johnson (D-IA), voting against the transfer, stated, "I strongly regret the majority's faithlessness to Commission policy and its cynical refusal to attempt even a token effort at defending its result with reasons. I join the articulate and thoughtful opinions of my colleagues Commissioners Cox and Bartley."[166]

FCC Commissioner Lee Loevinger (D-MN) wrote the only statement supporting the Overmyer construction permit transfers:

Two objections are urged against the proposal. First, it is argued that a Commission policy against permitting transfers that will result in a licensee holding more than three UHF licenses is violated; and second, it is objected that the transferor here will profit from sale of the construction permits, which is also contrary to Commission policy. These arguments are not without some force, and the issues are not free from all doubt, but, on balance, I think that the public interest objectives of competition and diversity will be better served by permitting the proposed transaction than by forbidding it. . . . 

A significant number of licensees now hold more than the number of licenses specified under the interim policy. If that policy is now construed or applied so that whenever any licensees (or permittees) seek to transfer their holdings the Commission will require that the group be broken up, this will inevitably result in decreased competition and increased concentration. One thing quite certain is that of the present group licensees it will be the weak ones (like Overmyer) rather than the strong ones (like RCA, Westinghouse and GE) which will from time to time find it necessary or advantageous to transfer their stations. Consequently the weaker of the group licensees will eventually be broken up and only the few very largest and strongest will survive. Further, the policy will prevent any other large or strong enterprise from acquiring group holdings. The result of such a course will be to leave us finally with a very few large and strong corporations holding the maximum number of licenses now permitted under the rules, while all others will be limited to two or three licenses, and will be prevented by FCC rule from acquiring broadcasting facilities that permit them to compete with or challenge the few large protected group licensees. Thus I believe that the position contended for by Commissioner Cox proceeds from an inadequate and unrealistic economic and market analysis and moves in the direction of promoting monopoly rather than competition.

The contention that the transferor here may in fact profit from this transaction has more weight than the argument concerning competition. However, accounting involving substantial sums in complex corporate organizations is not yet an exact science. The Commission staff has examined and analyzed the showing made by applicants and has concluded that the financial arrangements do not, in themselves, afford any profit to the transferor for his Construction Permits, or otherwise violate Commission policy. I do not see that there is anything to be gained by holding a hearing on this issue.

A hearing is warranted only where we can specify factual issues and the nature of evidence that may be relevant to resolve such issues. A hearing is not justified merely because we are confronted with a difficult decision which it would be pleasant to defer. Difficult decisions very seldom become easier with the passage of time or the amassing of argumentative material in a diffuse hearing.

A bearing is required as a preliminary to denial of an application, since each applicant has a statutory last chance to try and persuade the Commission to change its mind before entering a final order of denial. But I do not think that the transaction here is so inconsistent with the statutory scheme or Commission precedent and policy as to warrant denial. On the other hand, a hearing in such a case as this would be a profligate expenditure of manpower, money and time. It would, at the very least, delay the institution of new, competitive, UHF television service in five major markets for a period of years, perhaps many years. It might forever preclude the establishment of another vigorous, competitive UHF group of stations. In comparison, the potential disadvantages of approval are slight. Accordingly, I concur with the majority of the Commission in voting to grant the application.[167]

Three of the four FCC commissioners who voted to approve the construction permit transfers did not write supporting statements: James J. Wadsworth (R-NY), Robert E. Lee (R-IL), and Chairman Rosel H. Hyde (R-ID).

To regulate broadcast services in 1967, the FCC had seven commissioners—the Commission—appointed by the president and assisted by the Broadcast Bureau (Bureau); the Bureau investigated applications and made recommendations to the commissioners who vote on final decisions.[168] The Commission had cast a four-to-three vote approving the sale of majority control of five Overmyer subsidiary corporations to U.S. Communications Corporation. Written statements of the FCC commissioners formed much of the basis for a subsequent congressional investigation.

Rep. Harley O. Staggers (D-WV), chairman of the Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce House of Representatives (Subcommittee), called the commissioners to a hearing regarding their consent to the transfer. The meeting was held on December 15, 1967, with the commissioners—all were present except Wadsworth—covering the concerns expressed by the minority in their dissenting statements regarding the waiver of the Top Fifty Interim Policy and the resulting profit potential for Overmyer.[169][170] Staggers said the hearings would continue in the next congressional session, where the principals involved in transferring the construction permits would be asked to testify.[171][172] Hyde reminded the Subcommittee that the FCC had a priority in assisting the development of UHF:

In the interest of diversity, in the interest of competition, the Commission has sponsored the development of the UHF channels. Congress has responded to this in enacting the all-channel legislation which requires that any consumer buying a TV set sold in interstate commerce must be given reception of UHF as well as VHF. Consumers are making their investment in UHF. Consistent with that policy, the Commission must give encouragement to the development of the UHF stations. In this situation here that we are examining, we have a proposal of the AVC Co., with the assets to do so, to put new life into stations which may otherwise fail completely. . . .  What we have here is a possibility of introducing some viable operations which will provide diversity. And back of the whole thing is the necessity, I believe, of giving every assistance possible, every encouragement possible to the development of 70 channels [UHF], to be used in addition to the 12 VHF. I think that the committee should have this perspective of it as you look at the problems related to this particular case, where as I pointed out in my first statement, the majority of the Commission found it appropriate to authorize the investment of new capital lest the UHF should fail completely.[173]

In a dissenting statement submitted during a previous case similar to Overmyer, Cox cautioned the commissioners regarding their repeated accommodation in the interest of UHF: "I favor expanded UHF service like my colleagues, but I think we sometimes fall into the error of allowing almost anything in the name of UHF. We should not be emotionally predisposed to accept every argument which seeks to use UHF's cause for short range private benefit."[174]

In the Overmyer transfer case, the FCC’s desire to encourage rapid UHF television development conflicted with its Top Fifty Interim Policy on the concentration of ownership and the need to investigate this transaction further.

Several Subcommittee members questioned Hyde regarding the decision of the majority of the commissioners not to hold hearings; indications were that a more extensive investigation into transferring the construction permits was warranted. Hyde testified that—in his opinion—if a hearing were ordered, the transfer would have been abandoned.

The following exchange between Staggers and Hyde pointed to the primary reason an FCC hearing was not ordered:

  The Chairman. I should think in a transfer of this magnitude it
would have been wise at least to have held a hearing.
  Mr. Hyde. Chairman Staggers, I believe that the possibility of
refinancing the UHF stations would have failed had we designated
the matter for hearing.[175]

A question from Subcommittee member Rep. James J. Pickle (D-TX) revealed that an FCC hearing could create significant delays in getting the TV stations in operation:

  Mr. Pickle. Would full hearings have caused unusual delays?
  Mr. Hyde. I think so. I believe it might very well have defeated
this effort to salvage a sinking enterprise.[176]

Subcommittee member Rep. Paul Rogers (D-FL), suggested an FCC hearing was needed to investigate Overmyer's efforts to finance the TV stations:

  Mr. Rogers. By a public hearing you could have questioned Overmyer
and found out if he had tried to raise cash, how much assets
he needed. He must have had considerable assets to get a $3 million
loan.
  Mr. Hyde. I believe to have ordered a hearing in this case would
have been the finish of the whole project.[177]

Hyde explained why holding a hearing would jeopardize the transfer proceeding:

A hearing is a very severe sanction. I have participated in a number of efforts to simplify the hearings procedure, to limit the costs, and to expedite the whole business. There has not been any real success in the endeavor. Notwithstanding the efforts, they become longer, and more expensive, and in my judgment we have to find ways to get at the essential facts and conclude matters without the ordeal of hearings which exhaust the resources of both the applicant and the agency.[178]

In his dissenting opinion, Cox addressed the possibility of delays associated with hearings and how Overmyer's approach to the transfers was the primary reason a hearing was required:

[Commissioner Loevinger expressed an opinion that a] cost in manpower, money, and time . . . would be involved in a hearing on this matter, and the delay in institution of new service in these five markets that would result. In the first place, if Overmyer had been content to sell his permits to two different buyers for no more than he reasonably expended in obtaining them, he could have obtained approval of the transfers, without hearing, some time ago. He, not the Commission, chose to follow a course which presents the problems I have discussed. Even now, he need not go to a hearing and I doubt if he would, though we cannot deny his applications without affording him that opportunity. He can still comply with our rules and policies and get rather routine approval for the disposition of his permits. If delay in instituting a service is to be advanced as an argument against resort to the hearing process when serious issues are presented, then we simply cannot discharge our obligations.[179]

Subcommittee member Rep. John Dingell (D-MI) asked Hyde for more specific reasons why a hearing was not held:

  Mr. Dingell. What consideration went into the consideration of
the matter that no hearing was required in this matter?
  Mr. Hyde. One, we felt we did have full information.
Two, it is a matter where in the nature of things expeditious action
is required if the Commission is, in fact, going to act.
  Mr. Dingell. What is in the record to show expedition was
required?
  Mr. Hyde. The financial distress of the permittee.
  Mr. Dingell. You are required under the FCC Act to make a finding
in the public interest?
  Mr. Hyde. Yes.
  Mr. Dingell. Where is there the requirement that you come to the
conclusion that the permittee is under financial stress? There is no
place in the act where this is required, is there?
  Mr. Hyde. No.
  Mr. Dingell. Public interest is the sole test.
  Mr. Hyde. That is right, but I am suggesting to you that the plight
of a station and the effect of the distress of the operator upon the
public service is a relevant consideration.[180]

The Stock Purchase Agreement between Overmyer and AVC included a stipulation allowing either party to end the agreement if the FCC did not approve the sale of the construction permits within six months of filing the transfer applications.[181] The delay would have been substantially beyond six months and perhaps years if the FCC ordered a hearing.[182]

Dingell pressed Hyde on the lack of investigation by the FCC regarding the Overmyer permit transfers to U.S. Communications:

  Mr. Dingell. Here you have something that contravenes the 3-year
rule [FCC Rule 1.597, originally 1.365], the rule with regard to concentration of ownership in the 50 top markets, and these are only the top 25. You have also allowed the evolution of a rather interesting financial arrangement on which
there is broad controversy as to whether or not it is a $4 million
compensation or not.
You had no scrutiny in the form of an objective hearing to find
out the real circumstances. You concede you have engaged in no independent
scrutiny of the truth or falsity of the papers submitted to the
Commission.
You further say the way you will police this is by waiting to see
whether or not these statements were true or false with the later hope
that perhaps you will consider these in some relicensing
proceeding that will take place in the vague future.
  Mr. Hyde. I don't want to give the impression that I have any
doubts about the validity of the showings before us or that I feel it
is necessary for us to police it to make sure that the representations
they made were true.
I am saying that should they, unknown to us, have made misrepresentations,
there are sanctions adequate to deal with it.
  Mr. Dingell. Don't you think you have a responsibility as Chairman
of that Commission to ascertain the truth or falsity of statements
where there are questions of the kind we see here and where the rules
of the Commission regarding hearings are being so broadly and
wantonly waived by the Commission?
  Mr. Hyde. I think we have a responsibility to see that the documents
on which we act are truthful.
I also think we are not required to go out and investigate to see
whether there are—go out on a witch hunt ——— 
  Mr. Dingell. I am asking whether you made an independent investigation.
You said you have not?
  Mr. Hyde. There is no evidence of irregularity that would warrant
a special investigation.
  Mr. Dingell. How do you know there is no evidence of irregularity
You conducted no hearing and made no independent scrutiny?
  Mr. Hyde. This is the way we must act. We do not undertake field
investigations of every application filed with us. We could not do our
business with the resources we have if we had to proceed in that way.
  Mr. Dingell. But you have an extraordinary situation. Commission
rules say you will have a hearing in circumstances where the
license is under 3 years old when transferred, and you will have a
hearing where there is a tendency toward concentration because of
the excessive number of licensees operating in five or whatever the
number is of the top 50. Here you have five of the top 25. You made
no independent investigation and had no hearing.
  Mr. Hyde. There is no tendency to monopoly or concentration here
in the transfer of five UHF stations in markets where they will be
competing with the strongest forces in the broadcasting industry.[183]

Hyde concluded that Overmyer's application was sufficient for the Commission's approval of the transfers without additional investigation: "We have examined the whole matter carefully to assure ourselves that we have full information. If we felt we did not have it we would either undertake further inquiries or have a hearing."[184]

FCC Rule 1.597 (originally 1.365), Amendment of Part I of the Commission's Rules Adding Section 1.365 Concerning Applications for Voluntary Assignments or Transfers of Control (Docket No. 13864, Adopted March 15, 1962), erroneously cited by Dingell as applicable in this case, required TV stations to be held for three consecutive years before selling to a new owner; the FCC adopted this statute to discourage trafficking in permits of operational stations.[185][186] This new regulation intended to stop the high turnover rate in ownership of stations used to produce quick profits rather than providing the long-term continuity of service necessary to serve the public interest. It did not apply to transferring construction permits, so it was irrelevant in the Overmyer investigation. The FCC's out-of-pocket expense policy should limit trafficking in construction permits.[187][188]

Dingell asked Cox about the need to examine Overmyer's out-of-pocket expense submissions in a hearing:

  Mr. Dingell. I would like to direct the first question to Commissioner
Cox who discussed rather eloquently a statement on page 2, referring
to permits being held to actual expenses.
The statement goes on to say "Certainly it represents a novel approach
which I think would have to be tested in a hearing before it
could be accepted."
Then he goes on to make further statements and makes a further
comment with regard to the nature of these expenditures and how they
conform to previous Commission practices.
  Mr. Cox. I don't believe we have ever had this method of justifying
expenses used before. That does not mean it may not be valid, but I
feel before it is accepted in such a significant amount it would have
been desirable to test it in a hearing.
As I understand the procedure, they took a part of the period during
which Overmyer was acquiring and holding these permits for which
they had some records as to the services provided by other parts of his
empire. They then applied a certain percentage factor to these for
other parts of the period, for which records were not available. This is
all supported by affidavits of individuals in the Overmyer enterprises
as to what part of their time they devoted to broadcast aspects of his
operation.
To simply accept the aggregate of these figures without detailed testing
seems to me to be unsound. That is why I suggested a hearing
would have been appropriate.[189]

Hyde gave his opinion of why Overmyer did not sell all of his stock in the stations: he agreed with Cox's statement that the true nature of the Stock Purchase and Loan Agreement was to raise funds to save the warehouse business.

  Mr. Rogers. He did not have a competitive agreement. Why did he
have to get into the other properties? If this was to be a clean deal,
if the sales price was only for out-of-pocket expenses, why did he not
just mortgage the other 20 percent for the remaining $300,000 of
out-of-pocket expense?
  Mr. Hyde. I do not know, but it would appear that Mr. Overmyer
had found a source of capital to also rescue some other operations.[190]

In a subsequent exchange with Hyde, Rogers observed that the FCC had made it possible for Overmyer to recover more than the stated out-of-pocket expenses using the loan and stock option arrangement with AVC:

  Mr. Rogers. Is it true that under the agreement that you approved it
is stated it is understood the price to be paid for the stock shall not in
any event exceed $3 million?
  Mr. Hyde. Yes.
  Mr. Rogers. The price for the stock. Now the stock is the 20 percent
of the permit that the out-of-pocket expense amounts to about $300,000
on?
Why didn't the Commission restrict that price of the 20 percent
stock to $300,000? You restricted the first 80 percent to $1 million.
If you really are carrying out the intent to hold these transfer
permits to out-of-pocket expense you should have restricted the 20
percent to what the out-of-pocket expenses were.
Otherwise any one can come in, make a mortgage agreement, and
get whatever money they want.
You say "Well, it is later on."
  Mr. Hyde. AVC Corp. has not contracted to pay $3 million for it.
They have an option to pay ——— 
  Mr. Rogers. They didn't contract to pay out-of-pocket expenses for
it, either. You have not seen to that.
  Mr. Hyde. I think we have.
  Mr. Rogers. Show me the language.
  Mr. Hyde. We have required a submission of their costs so that we
could make a determination as to whether or not an amount ——— 
  Mr. Rogers. In their own agreement it says they can pay up to $3
million for that 20 percent but no more.
  Mr. Hyde. They can.
  Mr. Rogers. I thank the gentleman.[191]

Rogers suggested to Hyde that Overmyer's 20 percent stock, combined with the option for U.S. Communications to purchase later, was a device to circumvent the Commission's out-of-pocket expense policy. Dingell asked Hyde about the reasons for waiving several Commission policies:

  Mr. Rogers. So you would have allowed only out of pocket?
  Mr. Hyde. Yes.
  Mr. Rogers. As I understand it from the agreement, when that
permit was to change hands, they said, "We will pay you for only
80 percent of it right now"?
  Mr. Hyde. Right, sir.
  Mr. Rogers. "I am giving you $1 million for this."
  Mr. Hyde. Yes.
  Mr. Rogers. "But this 20 percent I will pay you $3 million for under
the agreement."
  Mr. Hyde. The buyer has an option to pay $3 million for it—up to
that or less—which he is not obliged to exercise.
  Mr. Rogers. I agree he does not have to.
Why did you not, in your investigation, require that to be restricted
for the 20 percent of the stock, restricted to the actual out-of-pocket
expenses prorated.
  Mr. Hyde. I don't think it would have been appropriate or necessary
for this reason:
Overmyer does not get his full out-of-pocket expenses. There are
$332,000 left uncompensated.
If he wants to risk that for 4 years as an investment, a venture in
UHF, why should he not be permitted to do it?
  Mr. Rogers. Why should not everybody do the same thing any time
they want to buy a permit, sell a 60-, 70-, or an 80-percent interest,
which controls the permit, and simply say after 3 years you can buy the
rest, up to $3 million, $4 million, $5 million? Does this really not get
around your policy of trying to hold it to out-of-pocket expense?
  Mr. Hyde. I don't believe the arrangements in this get outside our
policy.
  Mr. Dingell. Suppose you run into this circumstance again: are
you going to waive a hearing in that proceeding too? You have already
approved this set of circumstances which seem rather extraordinary.
  Mr. Hyde. This is a unique situation. There is a combination of
factors here of great significance. One is the impact upon the development
of UHF stations and the development of competitive network possibilities.
There is the unusual situation of an enterprise which started out with
substantial resources at the time suddenly meeting adverse circumstances
such as we have here. I do not know of any applications at all like this.[192]

Rogers questioned Hyde for the specific justification made that satisfied the "compelling affirmative showing" standard required for a waiver of the Top Fifty Interim Policy:

  Mr. Rogers. In any waiver, there must be an overwhelming showing,
I should think, that it should be waived in order to show an
overriding public interest.
  Mr. Hyde. Yes, sir. We believe that such a showing was made for
the purpose of this transfer.
I did want to mention to you that when Overmyer got his original
permit, there was no such policy. What has happened to Overmyer
is that he has found himself subjected to a procedural policy adopted
after he made his acquisition.
  Mr. Rogers. This often happens. He has protected himself. But
this does not mean someone else can come in and violate the policy;
does it?
  Mr. Hyde. It does not mean someone else can come in unless it can
be shown in a compelling way that the public interest would warrant
a waiver of that policy.
  Mr. Rogers. I do not see the showing in the record.
  Mr. Hyde. The basis on which the majority finds such a showing
is that you have the UHF stations in five more markets unable to
go ahead with the capital available, and another source of capital
available which will assure their operation.[193]

Congress and the FCC have been concerned about trafficking in broadcast station permits and licenses for many years. Trafficking occurs when construction permits, or operational stations, are traded primarily for profit rather than providing service to the public as required by the Communications Act of 1934.[194][195][196] The FCC's approval of the option and loan enabled the possibility of trafficking because Overmyer never placed the stations on the air and could sell the stock he retained to U.S. Communications Corporation at a profit.

The Subcommittee investigated the Overmyer transfers and held hearings in 1968 to determine if the FCC had fulfilled its responsibility to protect the public interest while processing the applications and decide if any changes to the Communications Act of 1934 were needed to prevent trafficking.[197]

In February 1968, two members of the Subcommittee, Dingell and Rep. John E. Moss (D-CA), introduced House Bill H.R. 15266, addressing concerns expressed by the Subcommittee during the initial hearing regarding the Overmyer construction permit transfer to U.S. Communications. The legislation proposed changes to the Communications Act of 1934—the statutory basis for the FCC's regulatory authority over broadcasting—governing the transfer of FCC construction permits and licenses. The terms included mandatory FCC hearings on transfers, limiting sale prices of permits and stations to an FCC-determined fair market value, strengthening financial disclosures for transferors and making transfers open to any interested parties rather than being restricted, under then-current law, to one selected by the transferor. An additional stipulation of the proposed legislation, unlikely to survive a court challenge, removed all legal shields protecting confidential communications between principals of the transfers and their advisers. The Communications Act of 1934 required the FCC to determine that each construction permit assignment was in the public interest rather than a finding for the entire group in a multiple permit transfer. Under the proposed legislation, the FCC must further express in its decision the specific justification for each permit transferred, illustrating how it served the public interest.[198][199][200]

On February 7, 1968, the FCC terminated the Top Fifty Interim Policy, which limited TV station ownership in the largest TV markets. Although the proposed rule was dropped, the FCC kept the clause requiring a public interest showing in transfers exceeding the limit of the Top Fifty Interim Policy: "[W]e will expect a compelling public interest showing by those seeking to acquire more than three stations (or more than two VHF stations) in those markets."[201][202][203]

The Commission noted that the success of UHF television expansion was a fundamental reason for terminating the Top Fifty Interim Policy:

[I]t is observed that insofar as UHF stations are concerned, an absence of the type of restriction proposed in the rule herein may well serve to make for a more rapid development of such stations and enhance the chances for development of a fourth commercial TV network. It would significantly contribute to the entry of persons who have the know-how and the financial resources to enter into and carry on UHF television broadcasting during this most crucial period. . . . 

. . . [W]ithin the total limits now contained in the rules, we believe an ad hoc approach will better enable us to deal with particular situations in particular communities than would a new fixed limit. Our conclusion in this respect is further reinforced by the present critical phase of UHF development and the need to have the flexibility to take action which on balance promotes the public interest in this vital area upon which the Congress and the American people, through purchase of all-channel receiver sets, have staked so much.[204]

In his dissenting statement regarding the termination of the Top Fifty Interim Policy, Commissioner Johnson said that this was another act of many intended for the benefit of UHF television:

The majority's reliance on the shibboleth "benefit to UHF" is not unusual. This Commission has hung so many decisions on the UHF peg that one wonders if the day will come when the whole hatrack will come tumbling down from its own weight. Restrictive CATV [Cable TV] rules are to benefit UHF. Increased consumer costs of all-channel sets are to benefit UHF. Large chunks of spectrum are denied to other potential users in order to benefit UHF. The ITT-ABC merger was justified, in part, as a benefit to UHF. And now the demise of the top-fifty rule will hopefully benefit UHF. It is almost a knee-jerk reaction.[205]

On January 15, 1968, the closing for the sale of majority control of the five construction permits to U.S. Communications Corporation was held at Overmyer's New York City headquarters.[206] At the closing, Overmyer received the second $1.5 million portion of the total $3 million agreed to in the loan contract signed on March 28, 1967.

Because AVC was an investment company with no experience in television broadcasting, its relationship with U.S. Communications was limited to providing financing.[207] An article in Broadcasting magazine on June 19, 1967, stated, "U.S. Communications will represent a merger of AVC capital and WPHL-TV know-how to get the five CP's [construction permits] on the air."[208] Two of the former owner-managers of WPHL-TV, Leonard Stevens and Aaron Katz, were included in the management team of U.S. Communications Corporation. They brought their broadcasting experience to the station group as vice presidents and members of the board of directors.[209][210][211][212][213] Castle became a partner in Butcher and Sherrerd and was appointed chairman of the board of directors of U.S. Communications Corporation.[214] Frank H. Reichel Jr., president of AVC, was appointed president and treasurer of U.S. Communications Corporation and a board of directors member. Reichel also owned 6.33 percent stock in U.S. Communications Corporation.[127] After completing the transfers, AVC owned 70 percent of U.S. Communications Corporation. The former owners of WPHL-TV, including Castle, Katz, Stevens and others, held 30 percent of the company.[215][127]

Overmyer had no ownership interest or management role as an officer in AVC or U.S. Communications Corporation; he was also not a member of the board of directors for either company. His involvement was limited to holding 20 percent of the stock in each of four subsidiaries of U.S. Communications Corporation: U.S. Communications of Georgia, Inc. (WATL-TV in Atlanta); U.S. Communications of Pittsburgh, Inc. (WPGH-TV in Pittsburgh); U.S. Communications of Ohio, Inc. (WXIX-TV in Cincinnati); and U.S. Communications of Texas, Inc. (KJDO-TV in Houston).[216][217][218][219][136] Overmyer was not an officer of the U.S. Communications Corporation subsidiaries.[220] He did not own any interest in WPHL-TV in Philadelphia or KEMO-TV in San Francisco. Corwin—Overmyer's original partner in KEMO-TV—held twenty percent of the U.S. Communications of California, Inc. U.S. Communications Corporation included a provision in the contract that could compel Overmyer to sell his 20 percent interest in the stations to them and an assignment of his option to purchase Corwin's interest in KEMO-TV.[221][222][136][223][224][225][226][227][228] U.S. Communications Corporation could choose to buy Overmyer's 20 percent stock between January 16, 1971, and January 15, 1972.[229] Overmyer had to pay interest on the $3 million loan until U.S. Communications exercised the option or the period expired. If U.S. Communications decided not to purchase Overmyer's stock, the $3 million loan principal would be due. If U.S. Communications Corporation exercised the option, the loan principal is also payable; however, the $3 million would be reduced by a purchase price determined by using one of two methods as outlined in Overmyer's contract with AVC:

The price shall be fixed by multiplying 20% by five times the gross receipts of the TV Companies during the 12 full calendar months immediately preceding the date on which the option shall be exercised, provided that if any of the television stations of the TV Companies has not been continuously operating on a schedule of at least 112 hours per week throughout the 18-month period immediately preceding the date on which the option shall be exercised, or if the gross receipts of any of such stations cannot be or are not for any reason included in this computation, then the gross receipts for such 12-month period for such station shall be deemed to be that share of the "total broadcast revenues" in the latest report then available of TV Broadcast Financial Data published by the Federal Communications Commission for the several markets as indicated below:

San Francisco 3%
Houston 5%
Atlanta 5%
Cincinnati 8%
Pittsburgh 8%

To the foregoing shall be added or subtracted, as the case may be, 20% of the net amount for all the TV Companies of the aggregate amount of cash on hand or on deposit, accounts receivable, prepaid expense and other current assets on the one hand, and of the aggregate of all debts and liabilities of the TV companies, such amounts to be determined as of the last day of the 12-month period immediately preceding the exercise of the option provided that the aggregate of all debts and liabilities for any one of the TV Companies shall for purposes hereof be considered not to exceed $500,000.[230]

Overmyer could require U.S. Communications to make an immediate decision whether to purchase his 20 percent interest during the option period. If U.S. Communications declined, the loan principal would be due. If U.S. Communications agreed to buy Overmyer's stock, the purchase procedure described previously would be activated.[231] The contract limited the highest purchase price to $3 million, the same amount AVC had loaned to Overmyer. The loan was secured by second mortgages on twenty-three of Overmyer's warehouse properties and his 20 percent interest in the TV stations.[232][233] U.S. Communications Corporation never executed its option to buy the stock owned by Overmyer and Corwin in the stations.[234] Overmyer repaid the $3 million loan.[235]

Four of the five stations where majority control transferred from Overmyer to U.S. Communications Corporation signed on in 1968–69:

• KEMO-TV channel 20 in San Francisco on April 1, 1968
  
• WXIX-TV channel 19 in Cincinnati on August 1, 1968
  
• WPGH-TV channel 53 in Pittsburgh on February 1, 1969
  
• WATL-TV channel 36 in Atlanta on August 16, 1969

The U.S. Communications group also included WPHL-TV channel 17 in Philadelphia, which began operation on September 17, 1965.[236][237][238] On October 13, 1971, the FCC deleted the construction permit of KJDO-TV channel 45 in Houston.[239][240] Except for the studio location for WXIX-TV in Cincinnati, U.S. Communications used the studio and transmitter locations selected by Overmyer.[241][88][242]

Dissenting statements written by the FCC commissioners suggesting that the FCC failed to protect the public interest by approving the transfer of control of the Overmyer permits to U.S. Communications attracted the attention of the House of Representatives, resulting in a congressional investigation in 1968.[243][244][135][245][246][247][248] The hearings continued on the Acquisition and Transfer of Five Overmyer Television Construction Permits.[249] Sessions were held in Washington, D.C., on July 16, 17, 19, 31, and August 1, 1968. Overmyer, several associates, the FCC Broadcast Bureau's staff, and five of the seven commissioners testified before the Special Subcommittee on Investigations.[250][251][252][253] The Subcommittee took testimony from the commissioners on August 1, 1968. Commissioners Wadsworth and Loevinger were not present: Wadsworth was ill, and Loevinger had left the Commission at the expiration of his term on June 30, 1968.[254][255]

The investigation was wide-ranging: it expanded beyond the initial concerns of the dissenting FCC commissioners by examining Overmyer's financial qualifications to get the original construction permits and irregularities regarding applications for additional time to construct the stations. Subcommittee investigators also looked into the Stock Purchase and Loan Agreements and the potential profit for Overmyer in violation of FCC policy. Overmyer's method of calculating out-of-pocket expenses was essential in the hearings because half of the amount was based on opinion instead of documented evidence.[256] In Memorandum 6738 (November 8 and 15, 1967) to the Commission, the Broadcast Bureau recommended approval of the transfer and acknowledged that Overmyer's approach of determining expenses was unusual but did not advise a hearing to examine the method.[257] However, instead of performing an in-depth analysis, the Bureau's primary justification was "the enthusiasm of Overmyer's commitment to entering UHF":

The claim for expenses falling in the second category presents a novel question, i.e., the right to reimbursement for "out-of-pocket" [expenses] which are substantiated by opinion evidence. The Bureau believes that in the particular circumstances here reimbursement for expenses in this category should be allowed. Considering the enthusiasm of Overmyer's commitment to entering UHF, there is no question that substantial expenses were incurred in attempting to get the station on the air. The extent of Overmyer's efforts here (which include putting the San Francisco and Newport [Cincinnati] stations in a position where they are almost ready to go on the air) is made clear by supporting exhibits. And the supporting affidavits of the various department heads (General Counsel, etc.) who rendered staff services to the permittees reveal, on close readings, that every effort has been made to be completely fair and objective in appraising the value of departmental contributions to the permittees. In view of this, the fact that expenses were incurred (a) under a former organizational setup which did not maintain complete cost records, and (b) were incurred at a time when transfer of the permits was the last thing in Overmyer's mind, should not bar recovery here.[258]

This memorandum to the Commission also stated, "In the Bureau's view the financial arrangements here are compatible with the public interest, and out-of-pocket expenses (which are subject to a question of proof) have been proven adequately."[259] During the congressional hearings, the following testimony given by Edward Hautanen, an attorney with the Bureau, responding to Robert Lishman, chief counsel for the Special Subcommittee on Investigations, revealed the Bureau did no investigation on the out-of-pocket expenses claimed by Overmyer:

  Mr. Lishman. Couldn't the Commission have made some kind of investigation as to whether or not these out-of-pocket expenses had actually been incurred?
  Mr. Hautanen. I suppose such an investigation might have been made.
  Mr. Lishman. Has the Commission made it in other cases?
  Mr. Hautanen. Not that I am aware of, any case I have worked on.[260]

After examination by Subcommittee member Rep. Hastings Keith (R-MA), Hautanen disclosed that because of certification by the applicant and criminal penalties, the documents submitted to the FCC are usually accepted at face value with no further investigation:

  Mr. Keith. How did you satisfy yourself that these were bona fide out-of-pocket expenses? What procedures did you use?
  Mr. Hautanen. In this particular case, it was a rather lengthy document, let us say seven or eight pages, on which Mr. Overmyer substantiated his various out-of-pocket expenses. It was on the basis of this document which, as I say, was part of the certified applications, that we concluded ——— 
  Mr. Keith. What kind of certification was on that application?
  Mr. Hautanen. The certification I refer to is the warning on the cover of the application which states that any false statements subject you to criminal punishment under section 1001 of title 18.
  Mr. Keith. Does that include also omissions as well as errors of commission?
  Mr. Hautanen. Yes, sir.
  Mr. Keith. You have to take that at its face value because you have to have something to go on and these men do this under a certain penalty.
  Mr. Hautanen. That is the assumption. When they file an application, and so certify it as a responsible application, they will be held to it.
  Mr. Keith. You never seek to go back of that to check into the validity of that document?
  Mr. Hautanen. Generally speaking, no.[261]
 

The documents Hautanen referred to were affidavits from managers of The Overmyer Company, Inc. justifying their departments' out-of-pocket expenses. Their statements were filed with the FCC on June 30, 1967, in the certified applications to transfer control of the construction permits.[262]

While under oath, Thomas J. Byrnes, executive vice president of The Overmyer Company, Inc., answered a question regarding the justification for using the out-of-pocket expense approximation formula and confirmed his previous assertion that no usable expense records existed outside of the four-month base period from September through December 1966:

  Mr. Lishman. Can't we test fairness and propriety of this base
period allocation approach by pointing out various examples of the
real foolishness of it? For example, here is an employee, Albert E.
Owens. He is letter No. 17. He was employed only 1 month. He earned
$665. Now a total of $5,428 was charged to the communications companies
for the services of this employee which is $4,763 more than
his total earnings.
In the first place, I don't understand why you have to have a base
period at all. Out-of-pocket expenses are out-of-pocket expenses. When
you run it up on an estimated allocated basis of $666,000 and work out
some kind of formula that will take a peak period, I certainly don't see
any equity or justice.
  Mr. Byrnes. It was the only period in which these allocated expenses
had been set out in such a way that they could be used, sir.[263]

Keith inquired about Overmyer's out-of-pocket expenses; Cox replied that the FCC should have held a hearing to examine the method more closely:

  Mr. Keith. Under those circumstances, Commissioner Cox, you
made what I thought was an extraordinarily well written justification for
the minority view. How did you go about getting your facts? How did
you resolve the questions that must have been in your mind and were
at variance with those of Mr. Hyde?
I have in mind particularly the out-of-pocket expense which seemed
to be extraordinarily poorly documented, and which would have alerted
me at once that this whole matter should be studied more closely.
I wondered how you went about satisfying yourself that your minority
views were well founded.
  Mr. Cox. I proceeded, Congressman Keith, basically on the
document, the [Broadcast Bureau] staff report, that was before the Commission
and on the answers I got from questions to the [Broadcast Bureau] staff in
the course of our deliberations. I did not have the opportunity to dig into the
applications themselves. It seemed to me, on the face of the analysis
that the [Broadcast Bureau] staff had made, that this was the first instance
in which we had had this kind of effort to establish out-of-pocket expenses.
Also, the method they outlined, as I understood it, seemed to be open
to serious question. The position I took was not that I had gone into the
files and really satisfied myself that the out-of-pocket expenses were
something else, but that it appeared to me that if this was really what
the applicant was doing, we clearly needed a hearing to explore this,
because it seemed to me it would probably require more than simply
the analysis and study of the application to find out what was the actual
basis for some of the estimates that went into the out-of-pocket calculations.
[264]

In later testimony, Cox said that the Bureau's staff could not adequately investigate Overmyer's out-of-pocket expenses outside of a hearing:

[I]t was the lack, really, of precise information that made me feel we should have a hearing. We don't really have [Broadcast Bureau] staff enough to explore all of these things in the field, as perhaps might be desirable. If we are not able to satisfy ourselves on the basis of the information supplied by the parties, we would normally designate the matter for hearing, and call witnesses.[265]

The Subcommittee also considered Overmyer's failure to include the information in applications filed with the FCC for an extension of time to complete the construction of the stations. Investigators suggested that the applications should have divulged—by Overmyer filing an amendment to them—the financial conditions preventing the completion of the stations and the intention to sell the construction permits. Applications were never amended to disclose that a contract was entered where majority control of the construction permits had been sold to AVC. The Subcommittee said that these omissions violated FCC Rule 1.65, which notified the Commission of all changes in the information needed to decide on the applications.[266] Rule 1.65 specifically required filing amendments to applications notifying the Commission of pertinent changes. Investigators viewed this failure as a concealment of facts to keep the permits in salable condition.[267] The Bureau regarded the violation only as a technical infraction. Although Overmyer had not submitted the transfer contracts by an amendment to the extension applications, he filed them with the ownership section of the FCC on April 28, 1967, within thirty days, as stipulated by Rule 1.65. However, the FCC was initially unaware the letter and contract were filed; their receipt was overlooked in supplying information to the Subcommittee.[268][269] Extensions for additional time to construct the stations were not immediately granted upon receiving the applications; according to standard practice, they were later considered at the same time as the applications for transfer of the construction permits to the U.S. Communications Corporation.[270][271][272] Hyde stated, "I will agree that there ought to have been an appropriate reference in the [extension] applications to the filing of material in the ownership file. The fact it wasn't there does not mean that the Commission would not be on notice."[273] Despite the Subcommittee's accusation that the applications for extension of time to complete construction were intentionally misleading to keep the permits active, the FCC was fully informed of Overmyer's financial difficulties and intention to sell control of the permittee corporations before approving the extension applications.

Hyde maintained that the Top Fifty Interim Policy was waived to ensure the five stations could quickly begin operation. He also cited the All-Channel Receiver Act as justification for the waiver because it prioritized UHF-TV development. Subcommittee member Rep. Brock Adams (D-WA) questioned George Smith, chief of the FCC's Broadcast Bureau, regarding the Top Fifty Interim Policy relative to UHF television development:

  Mr. Adams. What was your position on the top 50 market principle being set
aside for AVC and the fact that you would ordinarily not allow a nonlocal
corporation, with no previous broadcasting experience to stand
first in line for an application in the market?
  Mr. George Smith. Mr. Chairman, ever since the Congress passed
the so-called all-channel receiver law, the Commission has continued to
follow a policy of doing everything it could to foster the development
of UHF television.[274]

Subcommittee member Rep. Clarence J. Brown Jr. (R-OH) asked Martin Levy, chief of FCC Broadcast Facilities, about the expedition of construction permit transfers:

  Mr. Brown. Is this what FCC is faced with on this particular problem of
construction permits granted to someone who then runs out of money
and can't put it on the air?
  Mr. Levy. I think it is fair to say that the present Commission policy
is that once it has granted a construction permit and then before any
really substantial construction has been undertaken or money spent in
great amount, if that permittee decides to assign that permit to a third
party the Commission's policy has been to go ahead and permit the
assignment of the permit so long as the reimbursement does not exceed
the out-of-pocket expenses. That has been the general policy.
  Mr. Brown. What is the Commission's rationale?
  Mr. Levy. I think the Commission's rationale is that it is more likely
to get a station on the air sooner that way.
  Mr. Brown. And this is desirable, getting the stations on the air is
desirable?
  Mr. Levy. Yes, sir, particularly the UHF, the Commission has
thought this was desirable.[275]

Hyde had testified in the Subcommittee session held on December 15, 1967, that imposing a hearing in the Overmyer construction permit transfers to AVC would have increased costs and caused a lengthy delay. The delay would have likely resulted in the withdrawal of the transfer application; comparative hearings might then be required to examine new applications, creating long waits to start a new TV service. He also said further investigation was unnecessary because all the information needed for the Commission to vote on the transfer was available. Hyde summarized his views on the Commission waiving the Top Fifty Interim Policy hearing:

When you do designate a matter for hearing you have to take into consideration the consequences of that action. It may mean in some instances a hardship, the complete destruction of a project. It will in almost any instance mean a considerable delay in any construction or implementation of a permit. You would have to consider these factors against the background of the Commission's interest in encouraging the investment of funds in the development of UHF stations so that people buying all-channel sets under the all-channel law would get something for their investment in UHF. In the overall of this particular case representing one where you had an applicant who the Commission was satisfied had a bona fide interest in exploiting UHF stations, who had the money, at least a million and a half dollars in liquid assets when he entered the business, to put stations on the air. Our experience in UHF has been somewhat discouraging We have issued permits in many instances where no construction took place. In this instance the permittee did proceed and his record is rather better than many UHF holders. Then he did come into financial difficulties. At that point he undertook this assignment to the AVC people. When this matter of assignment came up the Commission would have to consider, should we proceed on these applications for extensions, or should we look toward the possibility of some constructive course which would see these stations on the air promptly. You have an applicant, AVC, which is in strong financial position and in the judgment of the majority it was in the public interest to get these TV stations going rather than to undertake deletion of permits and invitations to newcomers.[276]

Commissioner Lee testified regarding the likely effect of holding a hearing for the construction permit transfers: "The alternative of setting up a hearing and delaying service to some 30 million people for 4 or 5 years was something I did not care to face."[277]

Lishman asked Hyde for the public interest determination that an urgent need for additional television service existed in all five markets, which justified the waiver of so many FCC policies:

  Mr. Lishman. One question. On what basis did the Commission determine
that each of the communities involved in the Overmyer transfer
had an unusual and urgent need for additional television service?
  Mr. Hyde. I think that this decision was discussed in the overall. In
each instance it was a UHF station in an important market.
Commissioner Bartley reminds me that the Commission has made a
UHF station allocation to each one of these communities and there
would be, of course, an interest in seeing that made useful to the public.
As I indicated in the very first day of the hearings in this matter, we
had a situation where the grantee had found himself unable to proceed
and here was an opportunity to approve a transfer to new interests
who did have the substance to complete the construction and we thought
this indicated an urgent need.[278]

The Broadcast Bureau found the loan agreement was acceptable based on collateral and interest charges at the prevailing rate.[279][280][281][275][21][282][283][284] In its memorandum to the Commission recommending approval of the transfer, the Bureau said the loan was partially justified by "his [Overmyer's] dedication to UHF and losses suffered in efforts to establish a fourth network":

The Bureau recognizes that the extension of loans by a transferee to a transferor presents an unusual situation, which should be approached with some skepticism. With this in mind, the Bureau has carefully scrutinized the underlying loan agreements and is satisfied that they are consistent with the public interest. The loans are fully collateralized by mortgages and notes on various Warehouse properties: they bear interest at the prevailing market (Philadelphia) rate plus a quarter of a percentage point premium; interest is payable currently; and principal is repayable in three years. These considerations justify the conclusion that the loans are bona fide transactions involving the warehouse properties, and are designed to permit Overmyer to save the Warehouse group. Beyond these strictly legal considerations, there are—in the particular factual setting here—certain equities which weigh in Overmyer's favor. We have in mind here his dedication to UHF and losses suffered in efforts to establish a fourth network. The genuineness of his dedication to UHF is unquestioned, and there is nothing to suggest the permits were acquired as mere paper speculations, with no intention of building.[285]

Cox testified in the congressional hearings regarding his view of the loan and stock option:

Aside from the out-of-pocket expenses, this aspect of the transaction also bothered me greatly. It seems that, even assuming that Mr. Overmyer had had expenses of $1,300,000, the most he could have obtained under the Commission's policy was that amount, but that in effect, . . . by taking two steps he has gotten a million dollars in cash for out-of-pocket expenses, 80 percent. He has kept a 20 percent stock equity, on which he gave an option to AVC. They were to provide all further financing, so that if these businesses thrived and his stock would increase in value it would be due to no contribution on his part. Meanwhile, not only did he receive $1 million on the day of signing the contract, and before it was filed with the Commission, he also received $1.5 million of the $3 million that was later to be loaned on the security of his stock and of the second mortgage on the warehouses at about the time, or before, the contracts were filed and months before the Commission acted. It seemed to me in effect that he, rather than selling for $1.3 million, had held out for $4 million for his interest in these permits, which clearly would represent a profit and violate our policy. And while it was cast in another form, that seemed to me to be the reality of what had happened.[286]

Adams expressed his view of the loan and stock option contract: "It appears to me in it that you have, through the retention of the 20-percent interest and the basing of an option and repayment system on gross revenues rather than on any type of operation profit, an almost assurance of Mr. Overmyer receiving $1 million down and $3 million in a period of time on a half million investment, basically because we got a package of licenses."[287]

During questioning by Adams, Cox commented the FCC had been so accommodating to UHF that basic policies were not observed:

  Mr. Adams. Commissioner Cox, is my characterization of the fact
that Overmyer in effect out of this picked up $4 million with every
expectation that he is going to net that out of it rather than being
a loan, is that characterization in part true?
  Mr. Cox. We are predicting. My analysis, like yours, is that the
way the transaction is framed, this is the way it seems most likely to
me to work out. And certainly at a time when he apparently felt he
needed large sums of money, instead of simply getting back what he
had invested in these permits through an outright sale of them, he
got back 80 percent of what he claimed he had put into them plus a
loan of $3 million which I am morally certain AVC would not have
made to him if he had not been in a position to transfer the permits.
I don't think if he had been willing to sell all these permits to them
for $1,300,000 in one transaction and if he had gone back to AVC
the next week and said he would like to borrow $3 million on the
security of second mortgages on the warehouses, that they would
have been at all interested in that transaction. I think he was able to
get $4 million within a period of a relatively few months here, to
help him in the difficulties he had gotten into in his warehouse business
simply because he had the permits. Now I was anxious, as was the chairman
and the other members of the majority to see UHF succeed, to see the public
get more service, but I am not so anxious for that that I am willing to forgo
all our other policies. . . . It seems to me that the Commission
was so concerned about expediting UHF service that they did not maintain a proper
regard for these other two policies [Top Fifty Interim and out-of-pocket] which
I feel are equally important.[288]

In his dissenting opinion, Cox considered the rigged nature of the option price formula:

[I]t is argued that the option price may be less than $3,000,000 since that is stated as a ceiling. But as pointed out above, the formula for calculating the price is an unusual one, based on gross receipts instead of income. If the five stations have combined gross revenues of just $3,000,000 in the fourth year after closing under the stock purchase agreement, then the maximum price is payable. I think the parties fully intend this result and that Overmyer—having gotten the $3,000,000 in advance—will never be required to repay the purported loan in that amount.[289]

On the last day of the congressional hearings, August 1, 1968, Keith challenged Hyde regarding Overmyer's use of the loan and option arrangement with AVC to evade the FCC out-of-pocket expenses policy:

  Mr. Keith. It was really too much for me to comprehend how this
$3 million figure was arrived at. I was told yesterday by witnesses for
the AVC interests that they were willing to buy the stations for the
full out-of-pocket expenses a revelation which leads me to believe that
it must have been advantageous for Overmyer to take the 20-percent
figure and use it as collateral to get a settlement more favorable than
cash, itself.
There must be some value that could be assigned to that particular
20 percent, over and above what it represented in alleged out-of-pocket
expenses. Was the Commission aware that the buyer was eager to pay
the full price of the out-of-pocket expenses?
  Mr. Hyde. Our information was limited to what was in the application
and the additional information that the staff had submitted.
I had no contacts with the transferee at all. I never met them.
  Mr. Keith. This is a unique arrangement where the original licensee
retains a minority interest in the five stations, reserving for himself
the right to influence the decisions of those stations as a minority
stockholder.
I would think it preferable that if there is to be a transaction, the
stations should be bought outright.
  Mr. Hyde. This would undoubtedly be an easier case to handle.
  Mr. Keith. I think that you should have said to the buyer: "Customarily
we require that the transfer be complete. Why if you are
willing to pay the cash don't you do just that and make it a clean
deal?"
  Mr. Hyde. I would suppose that this would be, as you put it, a
cleaner way to handle it but there have been other instances where
permits were assigned and the previous owner retained a minority
interest.
Sometimes the original permittee has found it necessary to engage
the help of other people that have more money as the expense of the
operation became apparent.
There are several other cases where a minority interest was reserved
in connection with the sale.
  Mr. Keith. Is a loan with an option proviso something you are
customarily confronted with?
  Mr. Hyde. I can't recall any other instances where there was a loan
such as this.
  Mr. Keith. The thing that disturbs me, Mr. Chairman, is that you
have approved a package of questionable items, not the least of which
is this loan and option.
  Mr. Hyde. You will recall that this loan was secured by mortgages,
I believe second mortgages, but apparently fully secured by
security.
My suggestion is that this is the counterpart of the offeror who
makes the loan. The loan was not made solely as an inducement to
make the assignment. It was made on the basis of adequate security.[290]

The Stock Purchase and Loan Agreement between Overmyer and AVC stated that "[t]he Commission shall have granted its approval to the transfer of control of all five of the TV Companies to AVC without conditions or modifications in the terms of Commission authorizations materially adverse to AVC and shall have extended the expiration dates of each of the construction permits referred to in Paragraph IV 5 so that each such date shall be at least ninety (90) days from closing."[291] In addition, a condition required before closing was that "AVC shall have made the loans to Overmyer Inc. or its subsidiaries called for under the Loan Agreement." The loan to Overmyer was—in fact—a condition of the sale.[292][293]

Hyde’s testimony alluded to previous cases involving construction permit transfers approved by the Commission where partially withheld stock with an option potentially resulting in a profit to the optionor was present: the transfers were WKBF-TV, Channel 61, Cleveland, September 19, 1967; Overmyer's arrangement with Corwin for KEMO-TV, Channel 20, San Francisco, October 20, 1965; and WOGO-TV, Channel 32, Chicago, January 19, 1965. Further testimony by Hautanen confirmed the Bureau recognized the Commission had established a precedent in approving these cases. Because of the previous acceptance by the Commission of construction permit transfers with an option that included the possibility of a profit above the out-of-pocket expenses, the Bureau assumed this practice was acceptable; no opinion on the subject was made in its report to the commissioners recommending approval of the applications to transfer control of Overmyer’s permits to U.S. Communications Corporation.[294][295][296][297][298][299] Using this precedent, Overmyer's retention of a minority interest in the stations meant he could receive—but only during the option period after several years of delay—a payment far higher than the 20 percent of the out-of-pocket expenses the FCC would allow if the stock were included in the initial sale. However, a loan provision was not present in any of the three previous cases approved by the Commission that included options: the loan gave Overmyer advance payment of the maximum value of his 20 percent share specified in the contract—rather than waiting for U.S. Communications to exercise the option over three years later—to help resolve the warehouse company's immediate financial difficulties. Commissioner Cox had pointed out in his dissent to the WKBF-TV transfer that the approval would create a precedent conflicting with the Top Fifty Interim Policy:

Perhaps the majority will eventually abandon that [Top Fifty Interim Policy] proposal, but if so, that action should be taken consciously and for stated reasons after full consideration of the problem. It should not be slipped into, without explanation, in the course of disposing of particular applications on an ad hoc basis, thereby creating precedents which must control future actions, unless we are to be completely arbitrary and treat others differently than we treat Kaiser [Corporation].[300]

The Broadcast Bureau's memorandum to the Commission recommending approval of transferring the construction permits, quoted from Overmyer's application that "future financing will be largely the obligation of [USCC]"[301](brackets in the original). In his dissenting statement, Commissioner Cox noted that "the increase in value [of Overmyer's stock] will be largely due to additional investment by AVC in the construction and operation of the stations."[289] Answering a question from Keith, Cox maintained that this arrangement where Overmyer held an interest with no expectation of providing further financing should be forbidden by FCC policy:

  Mr. Keith. Another area of concern to me is the fact that here you
have a buyer who wants to obtain the stations for cash. Fictitious or
not, the list price of out-of-pocket expenses, he [U.S. Communications Corporation] had the money and he was eager to do it and the Commission apparently did not inquire as to why he would make that kind of deal instead of this one.
The easiest way to do it is selling it out and going into the trucking
business.
  Mr. Cox. I am interested in the Commission considering a policy
that would announce that we will not permit this division of interest;
that if a man has decided he doesn't want to continue with his permit,
he should either sell it outright, or if he sells part of it and retains
an interest that he should be obliged to bear the burdens of the
business proportionately with the other parties. If he is willing to lend
money to the corporation, if he is willing to put money in to replace
losses, then that is fine.
I can see a case where a man started out in good faith and then did
need assistance. I don't think that is the case in these transactions
where the optionor [Overmyer] is free of any obligation to help
finance the further operation.[286]

Commissioner Bartley had discussed this same point in his answer to a query from the Subcommittee earlier in the investigation regarding FCC Rule 1.597 (originally 1.365), which requires holding an operating station for at least three consecutive years before selling:

The policy basis of the rule does have application to stations not constructed, because trafficking in Commission authorizations takes place through permittees of bare CP's [construction permits] bringing in, by transfer or assignment, new partners or stockholders with additional money. The original permittee profits by the additional money and increased value of the permit.[302]

By approving this transfer, the FCC allowed Overmyer to avoid the risk and expense of developing the permits and enabled him to get an interest in a far more substantial enterprise for much less money than was committed initially. He could then wait for U.S. Communications to advance the stations and enjoy the increased value with no further investment or effort on his part. The loan immediately realized Overmyer's portion of the possible increased future worth of the stock he could use to rescue the warehouse company. The Broadcast Bureau's memorandum to the Commission recommending approval of the transfer referred to Overmyer's need for the loan to save the warehouse company as a partial justification for the Commission to consent to transfer the permits.[303] The Commission had approved an arrangement that could bypass the policy of not recovering more than out-of-pocket expenses. The FCC had no public interest obligation to compromise its rules, policies and procedures for the construction permits to be used to resolve Overmyer's other business difficulties. The Commission had also sanctioned the acquisition of a large group of stations—discouraged, if not forbidden by an interim policy—by U.S. Communications Corporation, which it could not get by the usual method of prevailing in a public interest test involving comparative hearings against competitors. The dissenting commissioners felt that in the desire to encourage rapid UHF development, the Broadcast Bureau and a majority of the Commission had compromised their mandate to protect the public interest.

Despite its justifications for approving the transfer, the FCC proposed new rules to tighten control over construction permit transfers. On August 28, 1968, the FCC issued a notice of proposed rulemaking addressing several concerns revealed during the congressional investigation of the Overmyer construction permit transfers to U.S. Communications. The statement invited public comments suggesting changes or additions before adopting the regulations.[304] The FCC suggested changing the out-of-pocket policy into a rule that would strengthen the prohibition of using permits to profit without providing service to the public. In addition, new guidelines would control the stock retention by sellers and any options that could provide a profit over legitimate out-of-pocket expenses. The FCC would subject these contract provisions to "the most searching scrutiny" and test the "true significance and character of the retained interest."[305] The FCC adopted these new provisions the following year.

On May 19, 1969, The Subcommittee Report, Trafficking in Broadcast Station Licenses and Construction Permits—Acquisition and Transfer of Five Overmyer Television Construction Permits, was published. It was a critical review of the FCC's grant of the construction permits to Overmyer and the subsequent transfer of control of those permits to the U.S. Communications Corporation.[306]

The report criticized the FCC's issuance of the permits to Overmyer in 1965 without adequately examining the applications and not holding hearings to investigate their apparent deficiencies. It expressed that the FCC had not fulfilled its statutory obligations: "Instead of basing its findings upon an evidentiary record, the Commission relied upon unsubstantiated representations and refused to subject them either to staff analysis or to the scrutiny of the hearing process."[307] The Subcommittee stated, "Each of his applications submitted to the Commission failed to supply the appropriate financial information required."[308] The Subcommittee's investigators discovered that the warehouse company's financial statements submitted by Overmyer to the FCC to prove the financial ability to construct and operate the stations were not audited by outside accountants, which created doubts regarding the assets. Before considering loans for the television stations, outside examination of the warehouse company and Overmyer's personal finances were called for by lending institutions; however, after questioning the banks, the Subcommittee's investigators determined Overmyer had submitted none of this information. As a result, the letters from banks used by Overmyer to show loan commitments were not solid binding agreements to lend funds, as prescribed by the FCC, but were only an offer to consider the loans if the audited statements were acceptable.[309] Overmyer's personal balance sheet, which was never submitted to the banks or the FCC, showed assets over liabilities of only $963.[310]

The Subcommittee noted the Broadcast Bureau had stated that Overmyer's applications for the initial grants did not provide sufficient evidence for the estimated first-year income from station advertising; this justification is necessary when including the advertising income in the financing plan for the construction and operation of the stations.[311] The FCC established this new financial standard in the Ultravision Broadcasting Co. ET AL Memorandum Opinion and Order Amending Issues (FCC 65-581),[312] released on July 2, 1965. The Ultravision proceeding concerned the financial qualifications of UHF stations operating in markets competing with VHF TV stations. The FCC wanted to avoid repeating the widespread failures experienced by UHF stations in the 1950s when many stations ceased broadcasting:

[W]e shall hereafter require all applicants for commercial broadcast facilities, whether AM, FM, VHF-TV or UHF-TV, to demonstrate their financial ability to operate for a period of one year after construction of the station. In those instances where operation during the first year is dependent upon estimated advertising revenues, the applicants will be required to establish the validity of the estimate.[313]

The Ultravision standard increased the period an applicant must show financial ability to operate the station without income from three months to one year. The origin of this revised standard was in a decision issued by FCC Commissioners Bartley, Lee, and Cox. On March 12, 1965, they released Memorandum Report and order FCC 65M-282 stating that

we must seek to strike a balance between our desire, on the one hand, to stimulate the earliest possible development of the UHF medium, and the danger, on the other hand, that attainment of our alternate goal may be impaired if there should be any broad-scale repetition of the financial failures of the early UHF years.[314]

The panel had initially recommended that the applicant show a three-year estimated revenue and establish the basis for that projection; the Commission reduced the requirement to one year.[315][316] In the Overmyer applications, the Ultravision standard applied to the Pittsburgh, Houston and San Francisco applications because they were pending when the new standard was adopted. The Atlanta, Cincinnati and Toledo applications were under the original three-month policy since they had been awarded before the Ultravision standard was instituted. Although the new financial requirement was ultimately expanded to all broadcast station applications and the revenue projection period was reduced to one year, it was clear the Commission had long-term concerns regarding the success of UHF TV.[317]

Overmyer's applications with the FCC contained estimates for construction costs and first-year operation that exceeded the funds he represented as reasonably available to meet the Ultravision standard.[318] Despite Overmyer's lack of financial showing, the Bureau made estimates of station income to justify there was adequate financing to award the permits: their report to the Commission stated, "Furthermore, it is not unreasonable to expect his six stations, all located in major markets, to generate total first-year revenue of $1,000,000."[319] The Subcommittee noted the Broadcast Bureau's estimates of advertising income were made with no more evidence than Overmyer submitted in his applications: their report stated, "If broadcast station applicants must make a strong evidentiary showing to support their projections of advertising revenue, surely the Commission is under an obligation to do no less when it, too, engages in projection-making."[320]

Despite FCC requirements, Overmyer did not provide statements showing the net income after taxes for the previous two years for himself and the warehouse company.[321] The Bureau ignored the omission of these statements and never requested the information before recommending the Commission approve the construction permits. The Subcommittee examined the tax returns filed by Overmyer's warehouse company with the Internal Revenue Service in 1964 and 1965, which revealed operating losses of $29,000 and $94,000, respectively.[322]

The report characterized the FCC's examination of Overmyer's initial applications:

Commission testimony concerning each one of the five Overmyer CP [construction permit] applications, including Cincinnati, disclosed that the Commission not only failed to perform its legal duty to carefully examine all of his [Overmyer's] submissions presented for the record, but, more inexplicably, failed to take any action whatsoever in connection with the very obvious defects appearing on the face of the applications themselves. Such glaring inconsistencies surely would have been noticed if only the most superficial review had been rendered. An awareness of these patent deficiencies, in turn, perhaps would have cautioned the Commission’s [Broadcast Bureau] staff to scrutinize, in some detail, other portions of Overmyer’s presentations.

"We didn’t go behind the document submitted in the application,”[323] Martin I. Levy, FCC Chief, Broadcast Facilities Division, stated. None of the five applications contained written evidence that the required analysis had been performed. [324]

The Subcommittee observed the FCC's intention was that

the private interests associated with UHF should be afforded special treatment if the public's interest in this broadcasting band is to be fully satisfied. Thus, in the eyes of the Commission, it was more important to expedite approval of Overmyer's original CP [construction permit] applications than adhere to the legal qualification standards for constructing and operating such channels if the UHF vacancies were to be filled—that is, the success of UHF at any cost.[325]

The report further stated, "A review of the facts pertaining to each of the CP [construction permit] applications led to one conclusion only: The Commission carelessly and in disregard of the law and its own requirements, committed serious errors in making permit grants to Overmyer in the first instance, and compounded that error by subsequently approving their transfers."[308]

The Subcommittee described the loan and stock option arrangement with the U.S. Communications Corporation as a "sham," guaranteeing Overmyer a profit violating the FCC's out-of-pocket expense policy.[326] Under the Communications Act of 1934, the FCC can consent to a construction permit transfer only after determining it is in the public interest.[327] The Subcommittee insisted the FCC abdicated their responsibility by not adequately investigating the transaction's profit potential inside or outside a hearing.[326][328][329][330] Subcommittee investigators' analysis revealed that if the U.S. Communications Corporation picked up the option, using either method of calculation, the purchase price should exceed $3 million, so the loan would not have to be repaid.[331][332] The report stated, "The option price formula was an ill-disguised means of circumventing the Commission's out-of-pocket expenses policy—a paper attempt to legitimize for FCC consumption the unauthorized $3 million stock payment afforded earlier to Overmyer under the mask of a loan."[333] The Subcommittee concluded the stock option and loan arrangement was a profit-taking device:

Such a pecuniary scheme should have immediately raised the spector of trafficking and called for a full-fledged review in a public hearing of Overmyer’s activities. Failure of the FCC [Broadcast Bureau's] staff to conduct an analysis of the price formula, among other essentials of this loan arrangement, was contrary to the public interest mandate of the Communications Act [of 1934]. And, the nature of this option arrangement, which places beyond doubt its exercise at a price of $3 million, results in a flagrant violation of the Commission’s out-of-pocket expense policy. By any standard, $3 million for five bare CP’s [construction permits] would be sheer profit taking even assuming the validity of all out-of-pocket expenses which Overmyer has claimed.[326]

The report included a detailed examination of the out-of-pocket expenses claimed in the sale of permits to the U.S. Communications Corporation. Investigators found overcharges for services, services never rendered, and expenses listed that did not apply to the actual permits transferred.[334] The Subcommittee stated the FCC had "accepted without question the unverified material Overmyer submitted in support of these expenditures."[335] The Subcommittee described the FCC's failure to examine the transfer applications:

[T]he Commission chose here to rely completely on the information submitted by the applicant without conducting its own independent staff inquiry to determine the validity of the presentation. . . . [W]hen discrepencies [sic] developed or facts were lacking in Overmyer's applications, the Commission failed to require evidentiary hearings prior to making its determination. This refusal to subject unsupported claims to the test of proof was particularly flagrant in light of the many novelties involved in Overmyer's expense submissions.[335]

The report commented on the Broadcast Bureau's practice of accepting the certification of applications rather than performing a closer investigation:

[T]he idea prevailed that close scrutiny of broadcast applications by the Commission is not compelling. In the Commission's view, if an applicant misrepresents facts the criminal penalties for such an offense will somehow rectify the situation and safeguard the public interest. Such a view makes a mockery of the law and of the regulatory process. Congress created the FCC to carry out certain critical responsibilities in the public interest. To unlawfully evade such a mandate would be a breach of trust of the most serious consequence. Commission members take an oath to faithfully administer the Communications Act [of 1934]. The fact that there are criminal penalties for misrepresentations in a license application cannot relieve the Commission from its duty of making findings supported by evidence and founded upon the public interest.[336]

The Subcommittee Report responded to the Commission's testimony that inadequate resources were available to examine the typical applications in-depth:

[T]he idea prevailed that the Commission does not have the manpower or budget to adequately inquire into every application. [FCC Chairman Hyde stated,] "With the resources we have in our place, we don't undertake to substantiate the usual application. We examine them and if we find indications of any irregularity we make a study."[337] Whatever the Commission's budgetary and manpower difficulties, the largest portion of Overmyer's application flaws were visible without intensive investigation. Therefore, failure to resolve these could not be blamed on any internal organizational needs.[338]

The Subcommittee noted that Overmyer had not filed the required amendments to applications for an extension of time to construct the TV stations:

Although there was some doubt whether Overmyer filed a copy of all the pertinent contracts and agreements involved in the AVC stock sale and loan, pursuant to FCC Rules 1.613 and 1.615, such filings, in any event, would not have satisfied the disclosure requirements of Rule 1.65. To discharge its duties under this rule, a permittee must file an amendment to the pending application. . . . 

. . . Overmyer's violation of this essential rule should have caused the Commission to hold an evidentiary hearing on his qualifications to continue as a permit holder. Instead, the Commission ignored Overmyer's rule infraction and approved his transfer application, thus breaching its own regulations and policies and enabling Overmyer to evade the legal consequences of his misdeed.[339]

The FCC's Top Fifty Interim Policy called for a hearing if an application's approval would produce ownership of more broadcast properties than the proposed rule would permit. A hearing would be waived if the applicant met the standard of a "compelling affirmative showing" that the public interest would be served: to satisfy the requirement, Overmyer maintained each UHF station would be in a market facing substantial competition. The Broadcast Bureau stated, "[T]he position of the applicants is that given the array of competition which the permitees here will face once they go on the air (and which WPHL-TV now faces), transfer of the permits to individual buyers is impractical, and the resources of a financially strong owner are needed to meet competition."[340] However, Overmyer's justification could apply to every competitive situation a UHF station in a major market would encounter. The Bureau noted that Overmyer's request to waive the Top Fifty Interim Policy's hearing met the standard established by prior exemptions granted by the Commission.[341] The Bureau told the commissioners that "the 'compelling affirmative showing' made here rises to the level of other showings which have been considered adequate to justify a grant without hearing. In view of this and other matters discussed earlier, the Bureau recommends the Top Fifty Interim Policy be waived."[342] Essentially, the Bureau's justification was that the Commission had set a precedent with earlier waivers of the hearing requirement and that creating a group owner was needed to ensure the stations were successful. The Subcommittee Report further commented on the previous waivers of the Top Fifty Interim Policy:

[T]here had been eight waivers of the 50-market rule. But, even in those cases, there had been some showing that before selling to a multiple [station] owner, the transferor had first tried to sell to a party whose acquisitions of the stations would not violate the interim policy. Such factual support was not present here. Moreover, many of those prior decisions involved licensees of operating stations, not holders of bare CP's [construction permits], who had proven losses of substantial sums. This condition was also not present in the Overmyer transfer, where the majority of stations were only in the earliest stage of construction, despite the lengthy period which had elapsed since the permits first had been granted.[343]

The Commission's order approving the transfer of control stated, "The Commission is of the view that a grant of this application would foster the development of UHF stations. This would be consistent with the Commission's efforts to provide a more competitive nationwide television service to the public. It is therefore believed the public interest would be served by a waiver of the Interim Policy."[344] Previously, the FCC stated that the success of UHF stations should not depend on group ownership. In part, the Top Fifty Interim Policy limited the concentration of ownership in the expanding UHF service.[345] However, the acceptance by the commissioners of the Bureau's justification for the waiver based on the need for group ownership went directly against the policy's stated aim. An inference was that—in this situation—the FCC's goal of quickly expanding UHF service superseded the Top Fifty Interim Policy. The Subcommittee noted the FCC abdicated its duty to protect the public interest by not subjecting this Top Fifty Interim Policy waiver request to a hearing. The report stated, "[T]he FCC proceeded to violate the letter and intent of its own rules, simply by disregarding them, and the Communications Act [of 1934] by failing to base its public interest determinations on findings of fact."[304] Subcommittee investigators maintained that by using the All-Channel Receiver Act to justify the transfer, the FCC's "main concern here was to safeguard the UHF investments of broadcast entrepreneurs and insure [sic] new sources of UHF capital are given regulatory accommodation even over the proper administration of the law."[346]

The Subcommittee Report mentioned the absence of a vital public interest finding required by statute before the FCC can approve any construction permit transfer. Section 310 (b) of the Communications Act of 1934 mandates a separate determination of the public interest for each construction permit transfer before FCC approval can be given. During testimony in the Subcommittee hearing session of December 15, 1967, FCC Chairman Hyde insisted that separate public interest findings had been made and outlined in the Bureau's memorandum to the Commission recommending the transfer be approved.[347] However, testimony was given on July 31, 1968, by the chief of the Broadcast Bureau, who sanctioned the Bureau's memorandum, contradicting Hyde's assertion. Responding to questioning by the Subcommittee, Smith said they made no separate determination for each market:

  Mr. Lishman. Where in the staff memorandum approving this
transfer is there any determination that the public interest for each
of the five CP's [construction permits] would be served by the transfer?
  Mr. George Smith. Paragraph 26 on page 12 contains the recommendation
that the above-captioned applications be granted[348] and the
Commission of course is aware that it can only grant if it makes a
finding that it is in the public interest. We try to save a little work
where we can and that is the law.
  Mr. Lishman. Is it a fact that there is no determination with respect
to any individual location here as to whether the public interest would
be served or not?
  Mr. George Smith. That is inherent in the memorandum.
  Mr. Lishman. I don't understand that. Aren't conditions different
in each market?
  Mr. George Smith. We recommended that the Commission grant these
transfers for all five.
  Mr. Lishman. Did you make a study of the market conditions in
Cincinnati?
  Mr. George Smith. No, sir.
  Mr. Lishman. Was any submitted to you by the applicant?
  Mr. George Smith. I don't believe so.[349]

The Bureau considered the transfer of control for these permits as a group rather than making a public interest determination for each station required by the Communications Act of 1934. Overmyer did not justify transferring the individual stations; the FCC never sought that information inside or outside a hearing.[350] Given these considerations regarding the public interest mandate of the Communications Act of 1934 and the Top Fifty Interim Policy, Commissioner Cox, in his dissenting opinion, stated the actual test before approving these transfers: "I do not think the majority [of the commissioners] can make a finding, on the basis of what is now before us, that there is such an unusual and urgent need for additional television service in these five communities that we must disregard important policies in other areas in order to rush these stations to completion. UHF is important, but not all important."[351]

The lack of hearings by the FCC was of particular concern:

In preceding paragraphs, the Commission’s own descriptive terminology for certain more obvious uncertainties about the transaction have been underscored. "A novel question," "an unusual situation" was the way some of these very apparent and unprecedented features were referenced. Yet, despite this realization that Overmyer’s submissions might not, on closer examination, measure up to the law and its own standards, the Commission refused to effect the needed review in or out of the hearing process. Indeed, FCC [Broadcast Bureau's] staff refused to recognize the many incompatibilities and discrepancies evident on the face of the documents presented. These issues alone should have provoked a hearing, not to mention the larger policy and public interest implications of the transfer which should have mandated an evidentiary review.

In lieu of facts. the Commission substituted "belief" and "dedication" and "enthusiasm." In place of findings, the Commission recited a string of contentions supported by no factual evidence of record.[352]

The Subcommittee recommended that "[t]he FCC should set aside its order of December 8, 1967, consenting to the transfer of Overmyer's five CP's [construction permits] to U.S. Co., and hold public hearings in the community where each station is located to determine whether Overmyer should be authorized to continue as a permittee of the five stations."[353] Also suggested were new legislation and changes in FCC regulations that would prevent profit from construction permit transfers.[353]

Although Congress did not pass any legislation changing the Communications Act of 1934, on March 5, 1969, the FCC changed many policies and rules to prevent the methods exposed during the investigation that afforded a profit to Overmyer. When selling a construction permit, a hearing is prescribed if there is a possibility of actual or potential financial gain above the provable out-of-pocket expenses. In particular, scrutiny will be given to cases where a seller keeps an interest in the construction permit, which may be disposed of later at a profit. Sellers are not barred from retaining some stock in the construction permit; however, a hearing can only be waived if they contribute capital to the further construction and operation of the station proportionate to their withheld interest. Hearings would be mandatory, with no waiver allowed, for cases involving a construction permit sale where the seller keeps some portion of the stock combined with an option for the transferee to purchase any part of the stock held by the seller. A hearing is also compulsory if the transfer agreement includes an option for the seller of a partial interest to purchase additional stock in the station later from the transferee. FCC Rule 1.597 (e) and (f) were enacted to carry out these provisions. Section (f) (4) addressed the need for hearings if options are included in the sale:

Applications subject to this paragraph (f) will, in any event, be designated for evidentiary hearing in any case where the agreements, arrangements or understandings with the seller provide for the seller's option to acquire equity in the station or to increase equity interests he retains at the time of the assignment or transfer of control. An evidentiary hearing will similarly be held in any case in which the assignee(s), transferee(s) or any of their principals, or any person in privity therewith, has an option to purchase all or part of the seller's retained or subsequently acquired equity interests in the station.[354][355]

These new regulations would have forced a hearing of the Overmyer transfer case because of the option in the contract for U.S. Communications to purchase later Overmyer's 20 percent interest. A mandatory hearing is called for only if an option exists in the agreement involving the sale of a partial interest in the permit. Interestingly, the regulation would not prevent a seller who keeps a minority interest from selling it later in a separate transaction at a profit. The FCC does not require permission to sell a minority interest, which does not involve a transfer of control of the station—the only obligation is to file the sale details with the FCC.[356] In addition, the existing policy that prevents the recovery of more than the out-of-pocket expenses in the sale of construction permits was codified into a rule. A new condition was included for transfer applicants to file an itemized out-of-pocket expense list. Further, it defined the specific expenses the FCC would approve. The transfer applicants must also declare no other agreements exist outside those disclosed in the application.[357][358]

Because of the House Subcommittee investigation, on August 26, 1970, the Commission announced a hearing to examine the out-of-pocket expenses involved in transferring control of Overmyer's construction permits to U.S. Communications Corporation; the proceeding lasted from 1970 through 1980.[359][360][361][362][363][364][365][234][366] FCC Memorandum Opinion and Order (FCC 70-911) set the purpose of the hearing on two issues:

Accordingly, IT IS ORDERED, That there be a hearing at a time and place to be specified in a subsequent Order, upon the following issues:

1. To determine, whether, in the application for transfer of control of D. H. Overmyer Communications Co., Inc. and D. H. Overmyer Broadcasting Co., Inc. the transferor, D. H. Overmyer, misrepresented to the Commission the amount of out-of-pocket expenses incurred in obtaining and developing the construction permits held by the above companies.

2. To determine, whether, in light of the evidence adduced under the foregoing issue, the executory option held by the U.S. Communications Corporation or any assignee thereof, to purchase D. H. Overmyer's interests in the holders of the above-mentioned construction permits should be declared void; whether D. H. Overmyer should be required to transfer to U.S. Communications Corporation his interests in the holders of the construction permits and, if so, whether he should be permitted to receive any consideration for the transfer of his interests.

IT IS FURTHER ORDERED, That D. H. Overmyer, AVC Corporation, U.S. Communications Corporation and its subsidiary holders of the five construction permits, and the Commission's Broadcast Bureau are made parties to this proceeding.

IT IS FURTHER ORDERED, That the burdens of going forward with the evidence and of proof shall be on D. H. Overmyer. [367]

The FCC did not set aside the permit transfers as recommended by the Subcommittee in their report. Control of the permits by U.S. Communications could stand while the FCC hearing was aimed solely at Overmyer. The proceeding was narrowly focused only on the representations made by Overmyer to the FCC regarding the out-of-pocket expenses. Many other issues raised by the Subcommittee in the congressional investigation would not be addressed in the FCC inquiry.

Memorandum Opinion and Order (FCC 70-911) referred expressly to the misrepresentation to be examined:

[T]he Commission has the duty to determine whether the expenses were as claimed and whether Overmyer has retained a 20% stock interest which is in fact supported by his actual expenses. If Overmyer misrepresented his expenses substantially and if his actual expenses did not exceed the $1,000,000 he has already been paid, his retention of a 20% interest and accompanying option were not justified.[367]

The Commission's hearing order did not explicitly show interest in Overmyer's intent regarding any misrepresentation in the expense submissions. Two interpretations of the term "misrepresentation" existed: if intentional, the misrepresentation would be fraudulent, and if not, it would be "to serve badly or improperly as a representation of," which is not a fraud. If Overmyer intentionally misrepresented the out-of-pocket expenses, the FCC could find him not to have the character qualifications to remain a licensee of the Commission. Despite WDHO-TV having no involvement in the construction permit transfers and never being mentioned in the Memorandum Report and Order (FCC 70-911), the FCC could revoke its license in a separate proceeding.[368][369] In August 1970, pending the hearing results, the FCC deferred WDHO-TV's license renewal, due to be acted upon on October 1.[370] Although Overmyer's intent was not mentioned in the Memorandum Opinion and Order (FCC 70-911), the suspension of WDHO-TV's license renewal showed the Commission was interested if the out-of-pocket expenses were purposely (fraudulently) misrepresented. WDHO-TV's initial license was issued on October 2, 1967; the FCC considered a TV station's license for renewal every three years.[371][372]

On September 28, 1970, Overmyer petitioned the FCC Review Board to delete an issue and change the burden of proof from himself to the FCC. Overmyer cited FCC rules that give the Commission thirty days to order rehearings of decisions. He asserted the Commission had never requested a rehearing of the decision; therefore, it was final, and the FCC had no power to alter the agreement. In addition, the Commission stated no specific statutory authority when it designated the hearing. Overmyer said that Issue No. 2 should therefore be deleted from the hearing. Overmyer conceded that the Commission had power over the misrepresentation issue. Still, since the proceeding contemplated restructuring a final action, "Congress intended that the ultimate burden of proof be placed upon the Commission." On February 8, 1971, the Review Board issued Memorandum Opinion and Order (FCC 71R-43), stating it had no jurisdiction to change the nature of the Memorandum Opinion and Order (FCC 70-911). They denied both of Overmyer's requests and sent the burden of proof question to the Commission for determination.

On September 29, 1970, Overmyer filed a second petition with the Commission to reconsider Memorandum Opinion and Order (FCC 70–911): he made the same two arguments in this new filing previously made in the petition to the Review Board. First, he maintained the Commission had no jurisdiction since the action contemplates restructuring a transfer agreement approved two and a half years prior. The Commission had never filed for a rehearing of that decision within the thirty days set in the FCC Rules; therefore, Overmyer argued the FCC could not disturb the agreement at this late date. Second, the Commission had never stated its authority for the contemplated actions in Issue No. 2; Overmyer maintained this omission illustrated that they were unsure of their jurisdiction.

On March 3, 1971, the Commission adopted Memorandum Opinion and Order (FCC 71-213), denying Overmyer's petition to delete Issue No. 2 and stating, "Based upon all the information before us when we designated this proceeding for evidentiary hearing, we concluded that we had the affirmative duty to re-examine the Overmyer transfer of control agreement to be sure that the Commission's prior approval was not obtained by fraudulent misrepresentation. Both Court and Commission case precedents have recognized an inherent power to reopen a judgment any time where it is procured by fraud."[373][374][360][375]

On August 18, 1971, the Commission adopted Memorandum Opinion and Order (FCC 71-842), placing the burden of proof for fraud on the Bureau due to "the seriousness of charges which Overmyer is required to answer."[376] Overmyer's burden of proof was to make a prima facie showing that substantially supported his out-of-pocket expenses. Still, the Bureau would have to prove any misrepresentation found was intentional. There were three outcomes possible in the proceeding:

1. Overmyer did not misrepresent the expenses.

2. Overmyer intentionally misrepresented the expenses.

3. Overmyer misrepresented the expenses but not intentionally.[377]

In the Initial Decision (FCC 73D-23), Administrative Law Judge Herbert Sharfman outlined his interpretation of the designation Memorandum Opinion and Order (FCC 70-911):

Although the Commission used the term "misrepresentation" in its memorandum opinion of designation [FCC 70-911], there is nothing to indicate, beyond some reference to possible factual discrepancies in Paragraph 3, that it was primarily concerned with "fraudulent" misrepresentation or with the "character" qualifications of Overmyer. What it was trying to do was to follow—so far, apparently, as it thought it now could—the Subcommittee's injunction that it satisfy itself as to the appropriateness of the consideration for the transfer. The Subcommittee, as has already been noted, suggested that the Commission set aside the entire transfer, lock, stock and barrel, but the Commission let the basic transfer stand and confined itself . . . to a consideration only of the expected sale of the 20% interest. The Subcommittee was interested in the enforcement of the Commission's policy (at that time not yet embodied in the rules) against profiting from the sale of construction permits.

In its designation Memorandum Opinion and Order, then, the Commission evinced its interest in a finding as to the adequacy of Overmyer's claim of expenses incurred to justify the option price. It repeated the term "misrepresentation" in the issues, but again in the context already discussed, and not as a basis for an inquiry into Overmyer's personal qualifications. . . . 

. . . [The findings of the Initial Decision] will center on the question of the conformity of the claimed to the actual expenditures. It has been thought unduly and unnecessarily complicating to import into the discussion the inflammatory subject of "fraudulent" misrepresentation, except as the facts incidentally bear on the matter of the expenditures; such misrepresentation, in short, will not be a topic for independent consideration. . . . To repeat, however: the initial aim of the proceeding, as it appears to the writer of this initial decision, is to assess the validity of the Overmyer assertion of expenditures; "fraud" and "innocence" are not in themselves objects of decision. . . .  The Commission, as stated above, did not constitute the proceeding an investigation into Overmyer's general qualifications, and it will not be so transformed.[378]

Judge Sharfman commented on the Commission later inserting fraud into the proceeding:

Not until the Commission's memorandum opinion released March 8, 1971 (FCC 71-213) did it refer to the possibility of "fraudulent misrepresentation." . . .  Yet, despite this assertion of its powers [denying Overmyer's petition to reconsider FCC 70-911], the Commission did not reopen the question of approval of the basic 80%—or majority and controlling—transfer, nor did it amend the original issues, which are still limited, so far as possible effective action is concerned, to the then executory option. One must conclude that the Commission thought it necessary to refute the arguments of petitioner Overmyer, but that it was not changing the essential nature of the proceeding.[379]

Despite his awareness of the FCC's deferral of WDHO-TV's license renewal and its use of the term "fraudulent misrepresentation" in the Memorandum Opinion and Order (FCC 71-213), the Administrative Law Judge tried the case while excluding the matter of fraud. So "misrepresentation" was determined by Overmyer's ability to support his submission of out-of-pocket expenses to the FCC. Because the judge omitted the consideration of Overmyer's intent from the proceeding, the conclusions of the Initial Decision (FCC 73D-23) did not satisfy the desired scope of the Commission's inquiry to determine if fraud occurred as specified by Memorandum Opinion and Orders (FCC 71-213) and (FCC 71-842).

Testimony was given during hearing sessions held on January 24, February 7 and June 7, 8 and 9, 1972. In the Initial Decision (FCC 73D-23), the Administrative Law Judge suggested that Overmyer's attempt to meet the burden of proof in the hearing used the same justification for the out-of-pocket expenses made in the construction permit transfer applications: no new evidence was introduced supporting the information initially submitted. During the hearing, it was revealed that—unlike earlier representations—usable financial records existed before the base period of September–December 1966.[380] The availability of the records contradicted sworn statements in the certified construction permit transfer application filed with the FCC on June 30, 1967.[381][382] The lack of usable records outside of the base period had been Byrnes's justification as executive vice president of The Overmyer Company, Inc. for the elaborate out-of-pocket expense formula he designed for the transfer applications to the FCC.[383][384] In the documents filed by Overmyer with the FCC, Byrnes stated, "The cost of the 'staff ' services was never separated out when they were recorded by the Warehouse and other Companies prior to September 1966. Such costs, especially the non-personnel costs of the various functions, were buried within the total expenses of the Company involved."[385][386] Byrnes had testified in the 1968 congressional hearings regarding the need for the approximation formula derived from the base period records: "It was the only period in which these allocated expenses had been set out in such a way that they could be used, sir."[387] Byrnes admitted he was aware the records before the base period were recorded in the same way as those within the base period, but initially claimed they were "inflated," later changing to "having no faith in their accuracy."[388] The expense records of The Overmyer Company, Inc. from January through March 1967 were not prepared when the out-of-pocket expense determination was made, which required including that period in the approximation formula.[389][390] He acknowledged the documents had not been examined to determine their accuracy relative to the approximation formula.[391] Although an outside audit of the records was available, no evidence was presented in the hearing to support Byrnes's claim the records were inaccurate.[392][393] Overmyer maintained the Broadcast Bureau's use of the financial records outside of the base period was inconsequential because any costs taken from them would be no more accurate than those from the approximation formula. Byrnes felt that before September 1966, when The Overmyer Company, Inc. began operation, the accounting was in a state where "anything was possible."[394]

The Commission was careful in its Memorandum Opinion and Order (FCC 71–842) to define the burden Overmyer was to carry in the hearing:

Moreover in the interest of clarification, we wish to point out that the placing of this burden upon Overmyer not only requires him to proceed with the introduction of evidence under the specified hearing issues, but further requires him to make a prima facie showing substantially corroborating his alleged out-of-pocket expenses as were previously represented to the Commission.[395]

In reaching his findings and conclusions the Administrative Law Judge stated that

Overmyer essayed to meet its burden in accordance with its own interpretation of "corroboration." It did not present “facts” “substantially corroborating” its representations in the applications, in the sense, for example, that it produced the persons directly involved in the initial incurrence of the alleged out-of-pocket expenses. Instead, Mr. Overmyer and other key executives submitted affidavits which essentially repeat earlier representations, reaffirm their belief in the accuracy of the original submissions, and disclaim any intent to deceive the Commission. The affirmative Overmyer case at the hearing went no further. . . . 

The point of the foregoing is that while it was not expected that Overmyer could attribute a precise—or reasonably approximate—dollar amount to the various activities, it cannot be allowed to slough off its responsibilities to the record by echoing generalities that had failed to quiet the Subcommittee's concern. Findings need not be more exact than this.[396]

The judge's opinion was that Overmyer's presentation had not carried the burden of proof required by the Memorandum Opinion and Order (FCC 71-842). The Bureau noted Overmyer failed with no rebuttal on their part:

The Bureau believes Overmyer's failure to carry the burden imposed on him by the Commission could have technically resulted in a decision adverse to Overmyer without any affirmative presentation on our part. Nevertheless, the Bureau elected to go forward. However, limitations, particularly the complexity of the Overmyer organization, the multiplicity of its books of account and other records and lack of familiarity with its operation, restricted the Bureau's ability to unearth all the material discrepancies.[397]

The Bureau insisted that Byrnes's mischaracterization of the usability of the records outside of the base period showed evidence of fraud in the construction permit transfer application.[398] Examining the newly revealed financial documents, the Bureau claimed the approximation formula had overstated Overmyer's out-of-pocket expenses by $227,000.00.[391]

On April 30, 1973, the Administrative Law Judge issued the Initial Decision (FCC 73D-23): "It is therefore held that in the applications for transfer of control Overmyer misrepresented to the Commission the amount of out-of-pocket expenses incurred in obtaining and developing the construction permits."[399] However, he explained the term misrepresentation: " 'Misrepresentation,' as has been emphasized, does not connote culpably false statements or intent to mislead the Commission."[399] The judge said, "It should, however, be understood that no certificate of innocence is intended; whether Overmyer acted from blackest motives or was merely mistaken is immaterial."[399] Concluding Issue No. 1, Judge Sharfman stated, "[I]t cannot be found that there is a reasonable concordance between the represented and 'actual' expenses. This is 'misrepresentation.' "[400] The ruling on Issue No. 2 pointed out possible limitations in the FCC's jurisdiction over contracts:

In allowing the underlying part of the sale to stand and concerning itself with the subsidiary (albeit monetarily larger) option agreement, the Commission apparently was analogizing its powers here to those it must exercise when it seeks to enforce the public interest. Yet none of the cases cited in Par. 5 of FCC 71-213 would permit an enlargement of the Commission's powers to warrant the mandate contemplated by Issue No. 2. . . .  The Commission is not limited, as a court might be, in the enforcement of its policy and its necessity to protect the public interest. But this does not mean that it can assume powers over contracts—a subject peculiarly within a court's purview—which even a court of equity could not exercise. Courts cannot remake contracts or reform them beyond the parties' agreements; they do not exercise a cy pres power over contracts as they do over decedents' trusts. Yet here the Commission, with no discernible relation to the public interest, would transfer a minority interest from Overmyer to U.S. Communications on terms which were not in contemplation of the contracting parties. The logic of conferring upon U.S. Communications an unexpected windfall does not commend itself. It is not immediately clear how the public interest is benefited by taking from Overmyer and giving to U.S. Communications so that the latter would have 100% ownership instead of the 80% which the Commission had not interfered with. Even if Overmyer were held guilty of “fraudulent misrepresentation”—and it has several times been stated that the initial decision would steer away from this area, Occam's Razor—it is impossible to see how divesting Overmyer of his share and conferring it on an entity which stands in the shoes of a participant—even though not particeps criminis—in the original transaction would benefit the public.[401]

The Administrative Law Judge ruled on Issue No. 2: "Cast about as one will, one cannot grant affirmative relief under Issue No. 2."[402]

By this time, the option for U.S. Communications to purchase Overmyer's 20 percent stock in the TV stations had expired. In addition, except for WXIX-TV in Cincinnati and WPHL-TV in Philadelphia, all the U.S. Communications Corporation's stations that had begun operation were taken off the air in 1971 due to low advertising revenue. In 1972, WXIX-TV was sold to Metromedia Incorporated for the assumption of the station's $3 million debt. The stations that ceased operation were sold, or sales were pending—in all cases, for a nominal payment. KJDO-TV had never been constructed, and its construction permit was deleted.[403][404] The value of Overmyer's equity in the U.S. Communications Corporation's stations was minimal. Essentially, Issue No. 2 of the FCC Memorandum Opinion and Order (FCC 70-911) had been resolved without intervention by the FCC.

However, WDHO-TV remained operational and wholly owned by Overmyer.

Overmyer recognized that omitting the question of intent in the finding of misrepresentation in the Initial Decision (FCC 73D-23) did not resolve the fraud issue introduced by the Commission in its Memorandum Opinion and Order (FCC 71-213), which could affect his character qualifications to remain the licensee of WDHO-TV. On October 11, 1973, Overmyer filed a Petition for Special Relief requesting the proceeding be ended or remanded to the Administrative Law Judge to resolve the fraud issue. On December 28, 1973, the FCC's Review Board released Memorandum Opinion and Order (FCC 73R-420), remanding the case to decide if Mr. Overmyer personally committed any fraudulent conduct. The Review Board stated that

[t]he Commission's designation Order, read in conjunction with its Order denying Overmyer's petition for reconsideration [FCC 71-213], clearly holds this proceeding encompasses an inquiry into whether or not Overmyer intentionally misrepresented his expenses in securing approval of his transfer. The Administrative Law Judge therefore erred when he failed to fully consider and resolve the misrepresentation issue—i.e., whether Overmyer intentionally or fraudulently misled the Commission—and his error, we believe, was a significant one. Overmyer is currently a licensee of the Commission and we agree with the Bureau that his qualifications to remain a licensee cannot be determined until the misrepresentation issue here is resolved completely.[405]

The remand Memorandum Opinion and Order (FCC 73R-420) did not direct the Administrative Law Judge to reconsider his ruling on Issue No. 2. Actions considered under that issue in Memorandum Opinion and Order (FCC 70-911) were no longer an effective method of relief. The hearing would continue solely to examine for fraud. If the misrepresentation were intentional, then a separate proceeding would be necessary to determine Overmyer's qualifications to remain a licensee of WDHO-TV.

The Administrative Law Judge responded to the remand Memorandum Opinion and Order (FCC 73R-420) from the Review Board by observing

that Overmyer's failure to substantiate the accuracy of its claimed outlays can be put to one side. For purposes of this [remand] decision it is taken as established that Overmyer did not prove that it had expended money in the acquisition and exploitation of the construction permits which furnished a basis for the price it received from U.S. Communications for the sale of the 80% controlling interests. In the terms of the initial decision and as a resolution of Issue No. 1, this was "misrepresentation." The issue now is whether the misrepresentation was intentional or fraudulent or whether it was mistaken or innocent. "Fraud" was the suspected forbidden conduct which expressly initiated this remand.[406]

Judge Sharfman noted that "reviewing authorities cannot ascribe to him an initial decision different from the one he really wrote and issued."[407] In addition, the judge stated, "[I]t has already been indicated that there was a substantial discrepancy, at least in this writer's opinion, between the holding of the Initial Decision [FCC 73D-23] and the Review Board's description of it."[408] The Review Board had misinterpreted the judge's ruling in the Initial Decision (FCC 73D-23) on Issue No. 2; they thought the judge had disposed of the issue because the U.S. Communications Corporation did not exercise the option to buy Overmyer's 20 percent stock and the diminished value of those remaining holdings. The Review Board stated, "The Administrative Law Judge further held that since the value of Overmyer's retained interest was marginal, requiring him to transfer this interest to AVC would be a meaningless gesture."[409] Judge Sharfman responded, "The Board's construction has the virtue of simplicity, but does not accurately represent the initial decision."[408] The judge corrected this erroneous interpretation by stating his actual ruling was that "the cause [of Issue No. 2] was misbegotten"—namely, ill-conceived by the Commission.[408] He further said that his ruling on Issue No. 2 was unrelated to the present status of the five transferred permits, which he was aware of and had outlined in the Initial Decision (FCC 73D-23).[410] The Review Board had mistakenly attributed a quote of Overmyer in the Initial Decision (FCC 73D-23)—as being the judge's opinion—that because of the expiration of the option and the low value of the remaining stations in which Overmyer still had an interest, Issue No. 2 had been resolved without the forced transfer of the 20 percent stock to U.S. Communications contemplated in the Memorandum Opinion and Order (FCC 70-911).[411][412] This correction by the judge led back to his opinion in the Initial Decision (FCC 73D-23) that the FCC did not have the authority to act under the suggested relief methods stated under Issue No. 2.[413]

No new testimony was given in the remand proceeding; the decision was based on the existing record of the hearing and additional written submissions from Overmyer and the Bureau.[414]

The Administrative Law Judge stated that

for the Bureau to succeed it must paint D. H. Overmyer into a corner. "Fraudulent misrepresentation" is an accusation against Mr. Overmyer. From the record it must be determined if he is legally chargeable with this personal dereliction. . . .  As the [Review] Board has construed the designation order, and from the wording of Issue No. 1, it is clear that Mr. Overmyer is specifically charged with deliberate and intentional—fraudulent—misrepresentation.[415]

The judge declared that the remand decision would be made on Overmyer's involvement in the misrepresentation as an individual rather than ruling on any possible intent found elsewhere in his companies. He also defined the burden of proof placed on the Bureau: "[O]ne must still be mindful of the affirmative duty of the accuser to bring home to him [Mr. Overmyer] his responsibility and guilt by 'clear, precise, and indubitable' evidence."[416] The legal standard of "clear, precise and indubitable evidence" was more substantial than the "preponderance of the evidence" used in most civil trials.[417] This higher evidentiary standard is the same as "clear and convincing" and "clear, cogent and convincing." The increased burden of proof was used in civil cases where fraud was an issue.[418] Judge Sharfman commented on the criteria necessary to connect Overmyer to the misrepresentation:

[T]o hold Mr. Overmyer at fault there must be more than a determination that officers or employees of the Overmyer companies misbehaved within the scope of their general authority. The conduct must be brought home to Mr. Overmyer by more than a recitation of wrongful acts and a conclusion of their prejudicial consequences. . . . There is nothing in the record from which it could be found that Mr. Overmyer participated personally in the studies which underlay the figures submitted to the Commission.[419]

In addition, the mischaracterization of the financial records by Byrnes revealed in the FCC hearing was never connected to Overmyer personally. Judge Sharfman observed that "[t]he rapidity with which Mr. Byrnes shifted his ground for reluctance to rely on the book entries (from 'inflation' to an unsupported claim of 'inaccuracy') makes it appear reasonable, to the extent that any appraisal of a past state of mind is valid, to conclude that the representation that the books were not usable was a deliberate and conscious misrepresentation."[420] The judge concluded that "the need for using a formula because of the inadequacy, on whatever ground, of the book entries, was not established."[421]

On May 13, 1974, the Administrative Law Judge issued a Supplemental Initial Decision (FCC 74D-29) stating, "It must therefore be concluded, in the terms of the remand, that Mr. D. H. Overmyer did not 'intentionally or fraudulently misle[a]d the Commission.' "[422] In addition, there was "a complete failure of the record to inculpate Mr. Overmyer personally, directly or by implication."[423][363][424] During the remand proceeding, the Administrative Law Judge noted that "[t]o resolve any doubt on the score, Overmyer has stated that he stands ready to transfer to AVC or its designee whatever remaining interests he may still have in any of the permits without any additional consideration."[425]

The Bureau and Overmyer filed exceptions in an appeal for the FCC Review Board to review the Supplemental Initial Decision (FCC 74D-29). The Bureau argued that the Administrative Law Judge used a higher standard of proof than was appropriate to decide the misrepresentation issue. Their view was a "preponderance of the evidence" was more consistent with past cases of misrepresentation decided by the FCC. In addition, the Bureau maintained the judge did not make any findings of fact but merely set out the parties' contentions. Overmyer's exceptions regarded the judge's conclusions on the lack of justification for the out-of-pocket expense approximation method and the misrepresentation by Byrnes on the relevance of expense records before the base period of September through December 1966.

On August 21, 1975, the Review Board released Decision (FCC 75R-313). The ruling stated that the Administrative Law Judge had made an error regarding the standard of proof used in the Supplemental Initial Decision (FCC 74D-29). They noted that "[a] finding of fraudulent misrepresentation may be founded upon a less stringent standard, namely, the preponderance of the evidence."[426] In addition, the Review Board commented on the effect of employee misdeeds on the licensee: "It is well established that the gross misconduct and fraud of an employee will be imputed to the licensee."[426] They further noted that "[t]he record evidence does not support the conclusion that Overmyer's failure to substantiate its expenses was the proximate result of Byrnes' misrepresentations."[427] The Review Board stated, "[W]e cannot determine on the basis of the record that the Bureau's estimate of communications expenses is any more accurate than Overmyer's estimate of the expenses. Moreover, we believe that the Bureau's showing . . . regarding specific erroneous departmental allocations falls short of establishing fraudulent misrepresentation."[428] The Decision (FCC 75R-313) expressed the Review Board's "opinion that the Bureau failed to sustain its burden of proof, i.e., that it failed to establish by a preponderance of the evidence that Overmyer fraudulently misrepresented its claimed out-of-pocket expenses for the permits to the Commission."[429] The Review Board found that although the Administrative Law Judge used a higher burden of proof to determine fraud than was appropriate in the Supplemental Initial Decision (FCC 74D-29), the Bureau had failed to prove its case under the correct lesser standard of "preponderance of the evidence."

The Review Board commented on the possibility of resolving Issue No. 2 of the designation Memorandum Opinion and Order (FCC 70-911):

If U.S. Communications Corporation's option granted by Overmyer were still executory—or had been exercised—or if the value of Overmyer's remaining interests were anything other than nominal, perhaps voiding the option or requiring Overmyer to transfer his remaining interests in the five permits to U.S. Communications Corporation would have been warranted in light of Overmyer's failure to make a prima facie showing. Suffice it is to say that given the facts before us, we need not make any determination as to whether Overmyer's out-of-pocket expenses were sufficient to support a retention of a twenty percent interest in the five stations.[430]

Despite Judge Sharfman's opinion in the Initial Decision (FCC 73D-23) questioning the FCC's jurisdiction under Issue No. 2, this statement by the Review Board declared that the present finding of misrepresentation—without fraud—might justify altering Overmyer's option terms with U.S. Communications. However, in the opinion of the Review Board, the option's expiration and the minimal value of Overmyer's 20 percent stock made action under Issue No. 2 unnecessary.

In this review of the Overmyer construction permit transfer case, the Review Board issued a final ruling on both issues specified in the original designation Memorandum Opinion and Order (FCC 70-911):

Therefore, in conclusion, based upon the Bureau's failure to sustain its burden of proof under the issue specified herein, we are unable to make an affirmative finding on the basis of the record here before us that D. H. Overmyer fraudulently misrepresented to the Commission his out-of-pocket expenses incurred in obtaining and developing the construction permits by the Overmyer companies and that Issue number 1 must be resolved in Overmyer's favor. . . . Issue number 2 is moot.[431]

If allowed to stand, the effect of the Review Board's ruling was to remove the threat to Overmyer's character qualifications to remain a licensee of the Commission and allow WDHO-TV's license to be considered for renewal.

The Review Board's remand Memorandum Opinion and Order (FCC 73R-420) confirmed the definition of misrepresentation in the designation Memorandum Opinion and Order (70-911) to include possible fraudulent misrepresentation—which must involve specific intent by Mr. Overmyer personally and the burden of proof of that fraud was on the Bureau. The Review Board, in its Decision (FCC 75R-313), agreed with the Supplemental Initial Decision (FCC 74D-29), which ruled that under Issue No. 1 of the designation Memorandum Opinion and Order (FCC 70-911) and subsequently clarified in Memorandum Opinion and Orders (FCC 71-213 and FCC 71-842), neither Overmyer nor the Broadcast Bureau had met their respective burdens of proof. Overmyer failed to support the out-of-pocket expenses, and the Bureau failed to prove the misrepresentation was intentional.[432] With no finding regarding Overmyer's intent, the Initial Decision, Memorandum Opinion and Order (FCC 73D-23) established that he misrepresented the out-of-pocket expenses; however, the final Review Board Memorandum Opinion and Order (FCC 75R-313) confirmed the Administrative Law Judge's Supplemental Initial Decision (FCC 74D-29) that the misrepresentation was not intentional and no fraud occurred.

The Bureau applied for a reexamination by the Commission of the Review Board's Decision (FCC 75R-313). On July 1, 1980, almost five years after the Review Board's Memorandum Opinion and Order (FCC 75R-313) was released, the Commission adopted Memorandum Report and Order (FCC 80-391), denying the request by the Bureau for further reconsideration.[433] The Commission's refusal meant the Review Board's decision was the final ruling in the Overmyer hearing. The Commission noted that WDHO-TV, while still operational, was now in bankruptcy. There was no point in continuing the delay of its license renewal to determine Overmyer's character qualifications; Overmyer would no longer be a licensee after transferring the station to a new owner. Also, the option held by U.S. Communications to purchase Overmyer's stock had passed unexercised. WXIX-TV in Cincinnati had been sold for the assumption of debt, while KJDO-TV in Houston was never constructed; WATL-TV in Atlanta, KEMO-TV in San Francisco and WPGH-TV in Pittsburgh had been sold for minimal payments while off the air and resumed operation under new owners. The Commission maintained if a review were held that reversed the Review Board's Decision (FCC 75R-313), there was no relief possible under Issue No. 2: the contemplated relief methods in the FCC Memorandum Opinion and Order (FCC 70-911) were moot.[434][435][436] The Commission noted that

[i]n light of the precarious financial status of WDHO-TV, we see no reason to further defer action on its license renewal and pending transfer applications because of alleged wrongdoing, not in connection with the operation of that station, which occurred twelve years ago, and which neither the Administrative Law Judge nor the Review Board were able to attribute directly to Mr. Overmyer personally.

In sum, in view of the remoteness in time of the events that were the subject of this proceeding, and the precarious financial condition of Overmyer's one remaining broadcast interest, we conclude that the public interest would be served best by denying the Bureau's application for review of the Review Board decision and terminating this proceeding. In doing so, we emphasize that our denial of review is done as a matter of administrative discretion based upon all the relevant circumstances and equities surrounding this proceeding, and is in no manner intended as either agreement or disagreement with the merits of the Review Board decision.[437]

After ten years in deferred status, the FCC renewed WDHO-TV's license on October 6, 1980.[438]

On July 12, 1966, Overmyer announced plans to create the Overmyer Network (ON), a fourth television network to compete against the Big Three television networks. He hired former ABC president Oliver Treyz as president of the new network.[439] Overmyer received exclusive rights to the Continental Football League and had plans to begin a daily late-night talk show from Las Vegas. By December 1966, the Overmyer Network had signed TV stations in 123 markets, including 24 of the largest 25.[440] However, in early 1967, Overmyer had inadequate funds to continue developing the network because of the warehouse company's financial difficulties. So Overmyer officials went to the board of directors of the Mutual Broadcasting System to discuss a merger of the two networks, requesting some $500,000 to begin production of the late-night show and additional funds to keep the network operational until advertising revenue became available.

The Mutual board of directors turned down the merger proposal. But three Mutual stockholders showed interest: Jack McGlothlin, a Texas oil operator; Willard Garvey, a grain dealer, an oil investor and land developer; and James Nichols, a Texas advertising and public-relations executive. They thought enough of the idea to form a separate group with eleven wealthy businessmen to buy 80 percent stock in the Overmyer Network in March 1967 and rename it the United Network. Overmyer held 20 percent of the stock but had no seat on the board of directors and no management role in the United Network.[441]

The United Network and The Las Vegas Show, hosted by Bill Dana, premiered on May 1, 1967. In early May, Overmyer sold his 20 percent interest in the network to majority stockholders for $240,000 cash and a promissory note for $115,000. On June 1, 1967, the United Network folded because of insufficient advertising revenue and costly AT&T distribution charges.[442] The last broadcast feed from the network of The Las Vegas Show was on May 31.

LewRon Television, a television production services company, sued D. H. Overmyer Leasing Company, Inc. regarding payment for services provided to telecast The Las Vegas Show.[443][444]

Because of poor advertising revenue, WATL-TV in Atlanta and KEMO-TV in San Francisco left the air on March 31, 1971, with WPGH-TV in Pittsburgh following on August 16, 1971.[445][446][447] All three TV stations were sold and returned to the air with the same call letters: WATL-TV on July 5, 1976; KEMO-TV on February 4, 1972; and WPGH-TV on January 14, 1974. After nearly being taken off the air on August 6, 1971, WXIX-TV in Cincinnati was sold to Metromedia Incorporated in 1972 for the assumption of the station's $3 million debt.[448][449][446][450][451][452][453] WPGH-TV was the only U.S. Communications Corporation station to enter receivership or bankruptcy.[454][455][456][457][458][459][460][461] These sales ended Overmyer's interest in the U.S. Communications Corporation's subsidiaries; however, WDHO-TV remained on the air as Toledo's ABC network affiliate (affiliated in 1969[462]). The Toledo station was then the only operational TV station owned by Overmyer. The D. H. Overmyer Telecasting Company, Inc. (Telecasting), founded in 1966, was the holding company for WDHO-TV.[463][33] Overmyer pledged the stock of Telecasting to the First National Bank of Boston (FNBB) as security for a $6 million loan in 1971.[464][465]

In 1973, Overmyer's warehouses began shutting down production and entered Chapter 11 in New York.[466] Alleged improper conduct by Federal Bankruptcy Judge Roy Babitt and the court officers he appointed to the Overmyer bankruptcy proceedings were investigated in 1978.[467][468][469][470][471][472] Overmyer's attorneys requested Babitt to remove himself from the case, which he refused to do.[473][474][475][476][477][478][479] A grand jury was eventually called to investigate these allegations. In May 1978, Federal Judge Lloyd F. MacMahon ordered the removal of Babitt from the case.[480][481][482] On April 7, 1978, the order declaring bankruptcy was vacated, although a receiver was appointed. Murray Guy, a court appointee, pleaded guilty to fraud and cooperated with investigators against other persons involved in the kickbacks during the Overmyer bankruptcy proceedings.[483] A five-member Bankruptcy Committee of judges from the United States District Court for the Southern District of New York criticized Babitt for "poor judgment" in appointing his brother's accounting firm to aid the receiver in the Overmyer bankruptcy. The Bankruptcy Committee further stated, "While Referee Babitt acted in good faith, he should have been aware that the appearance of influence was ever present, and the situation should have been avoided."[484] The United States Bankruptcy Court of the Southern District of New York subsequently ordered the sale of the assets of D. H. Overmyer Company, Inc.[465]

In 1976, after defaulting on the FNBB loan, Telecasting filed a petition under Chapter 11 bankruptcy in New York.[485][486][487] The bankruptcy proceeding was dismissed in 1980 and appealed by Overmyer. The court denied the appeal; Telecasting filed bankruptcy under Chapter 11 in Cleveland the same day. In the interim, Overmyer operated WDHO-TV in a debtor-in-possession arrangement with the court. On March 25, 1981, the Cleveland bankruptcy court awarded control of Telecasting to FNBB. Overmyer filed objections with the FCC claiming the court order violated the FCC rules regarding the transfer of control of broadcast station licenses. On May 12, 1983, the FCC rejected the petition and issued an order transferring control of WDHO-TV from Telecasting to FNBB.[488] FNBB eventually sold WDHO-TV through bankruptcy in 1986 to a local group, Toledo Television Investors, Ltd., for $19.6 million.[489][490] The call letters of WDHO-TV were changed to WNWO-TV.

On August 7, 1981, the Overmyer leasing company (Hadar), which was in Chapter 11 bankruptcy, filed a proof of claim for $859,481.80 in the Telecasting bankruptcy proceedings. This filing would lead to the indictment of Overmyer and attorney Edmund M. Connery.[491] Hadar purchased broadcasting equipment and then leased it to Telecasting for use by WDHO-TV. The Government charged that aspects of the leases were falsified to the bankruptcy court to inflate the Hadar claim and unjustly enrich Overmyer.

On January 28, 1986, Overmyer and Connery were indicted in the United States District Court for the Northern District of Ohio. The indictment charged Overmyer and Connery with six counts of bankruptcy fraud, two counts of conspiracy to commit bankruptcy fraud, and one count of mail fraud. Connery, charged with six counts, was granted a separate trial.[492] Overmyer was convicted by a federal jury in Akron, Ohio, of one count of filing a false bankruptcy claim, and Connery was convicted of one count of aiding and abetting the filing of a false bankruptcy claim. The trial judge overturned the convictions, citing inadequate evidence to find the defendants guilty. The prosecution appealed the judge's decision to the United States Court of Appeals for the Sixth Circuit in Cincinnati, which reinstated the convictions.[493][494] In 1989, Overmyer was sentenced to three years in federal prison (with six months in custody), three years on probation, and a $5000 fine. On May 10, 1990, the United States Court of Appeals for the Sixth Circuit denied an appeal from Overmyer and left standing the conviction.[495] Overmyer appealed to the Supreme Court and was denied a hearing on October 29, 1990.[496][497] Connery was sentenced to two years on probation and a $5000 fine.[498] Connery was also disbarred from practicing law in New York State.[499] On May 15, 1991, Overmyer was released from the Federal Correctional Institute (FCI) Englewood in Littleton, Colorado.[500]

Overmyer married his wife Shirley in 1943. They had four children. His daughter Olga was an adopted child from his second marriage. Overmyer's wife Shirley preceded him in death on December 2, 1994.[501]

In the mid-1980s, Overmyer and Shirley relocated to Denver. In 2009, Overmyer suffered a debilitating stroke. Shortly after, he moved to an assisted living facility in Tarzana, California, to be closer to his son John. Overmyer died on July 24, 2012, at the Providence Tarzana Medical Center in Tarzana. He was 87 years old. His funeral was held on Sunday, July 29, at the Reeb Funeral Home in Sylvania, Ohio. He was buried in Toledo Memorial Park in Sylvania, Ohio.[502]