Ouch! Out-Sized Penalty for Ordinary Outfit Overlooking Obligations

Sheet-metal company to pay $135,000 for license-related paperwork violations; offenses included operation after expiration and unauthorized transfer of control.

Many businesses must comply with the FCC's rules, even though they may not know it. Failing to understand this can prove expensive.

Just ask Constellium Rolled Products Ravenswood, LLC.

According to its website, Constellium is one of the world's largest "rolled products" facilities, producing plate, sheet and coil products for aerospace, defense, transportation, marine, and other industrial uses. Spectrum use does not obviously figure in those activities. But Constellium does use two-way radios in its operations; as it told the FCC, the radios are critical to its internal management, security operations, and employee safety.

Because of the radios, Constellium will be paying the FCC $135,000 (negotiated down from more than twice that) as a "civil penalty" for: failing to file timely renewal applications for its radio licenses; operating the radios without a license; and transferring control of the licenses without the required FCC approval. (Constellium also failed to provide required information to the FCC on multiple occasions, but those lacunae do not appear to figure into the penalty.)

Constellium's woes are the culmination of a multi-stage SNAFU. The scene was set in 2001, when the FCC issued eight licenses to Pechiney Rolled Products LLC, a company then unrelated to Constellium. Each specified a 10-year term, meaning that they were set to expire on various dates in 2011-2012. In January, 2011, just weeks short of the expiration of the first four, Constellium entered the picture by acquiring the licensee company, whose name had since been changed a couple of times.

Even though the FCC had sent Pechiney notices of the four imminent expirations (and consequent need to file for renewal) three months earlier, those notices were apparently not brought to Constellium's attention at the time it acquired Pechiney. The FCC sent similar notices concerning the four licenses expiring later in 2011 and in 2012, well after the acquisition, but those, too, failed to get Constellium's attention - probably because, following its acquisition of Pechiney, Constellium had failed to update the mailing address in the FCC's records associated with the licenses, so the notices may have gone astray.

As a result, Constellium filed no renewal applications and all eight licenses expired " but Constellium continued to use the radios. In 2013 it woke up to the problem. The company requested and received Special Temporary Authorities (STAs) from the FCC that allowed it to keep operating the radios while it sorted things out.

But that was not the end. Shortly after grant of the STAs in mid-2013, Constellium's parent company conducted an initial public offering that resulted in a change in control of the parent - and, thus, control of Constellium's eight STAs, plus four licenses that had since come into the picture. Neither Constellium nor its parent asked for prior approval of this transfer; indeed, neither even told the FCC about the IPO for another year, at which time Constellium requested (and received) another set of STAs while the FCC considered its late-filed request for approval of the transfer.

The FCC's Enforcement Bureau stepped in. Its Notice of Apparent Liability proposed, first, a base fine of $10,000 for operating beyond the expiration of each of eight licenses, plus $3,000 for failing to seek renewal of each, for a subtotal of $104,000. The Bureau raised that to $256,000 because the company was slow to report the violations, and also because it is part of a multi-billion dollar global enterprise. For the unapproved IPO transfers, the FCC assessed $8,000 for the transaction, but raised that almost fivefold to $38,400 in consideration of the number of licenses involved (12), ability to pay, duration of the violation, and other unspecified factors. That made a grand total of $294,400. In a recently-adopted Consent Decree, Constellium acknowledged the violations, committed to a plan intended to promote future compliance, and agreed to pay a reduced fine of $135,000.

Note that the violations caused no actual harm, although in principle they could have: the radios' absence from frequency coordination databases could have resulted in interference to other users, for example. But there is no indication anything like that happened. To us here in the CommLawBlog bunker, the penalty initially assessed for the violations seems high. Even the negotiated reduction to $135,000 is a lot of money, we think, for a paperwork foul-up that did no real-world harm.

We post this in hopes that other licensees will take Constellium's problems as a warning to put their own houses in order. Having had to clean up after many companies that lost track of their licenses and neglected their FCC obligations, we recommend the following practices:

• Put one person in charge of all FCC licenses for all affiliated companies. Make this duty part of the job description so it passes to the person's successors.
• House all of the affiliated companies' licenses together, either in a paper file or a well-backed-up electronic file. Also keep here FCC renewal reminders, copies of renewal applications, and any other FCC-related correspondence.
• Put licenses for all affiliated companies in the same company name, at the same address. This makes it easy to track license details through the FCC's database, and ensures that renewal reminders and other FCC communications get to the right place.
• Create and maintain a calendar of renewal due dates and expiration dates.
• Remember that name and address changes require notice to the FCC, while any change of control (via asset sale, stock sale, IPO, etc.) requires prior FCC approval plus a subsequent notice of consummation. These steps are easy to overlook in the stress of a transaction.
• Have on call a communications law firm, consultant, or frequency coordinator who is expert in the licensing rules. Many licensees rely on the company that sells them radios, but not all such companies are good sources of information.

With these measures in place, you can avoid coming to the attention of the Enforcement Bureau - and, more important, avoid becoming the subject matter of a CommLawBlog cautionary post.