The investigation into Constellium’s licenses arose in August 2013 after the company filed applications in April 2013 for special temporary authority for a number of PLMRS station licenses, which included an admission that the company had been operating without authority following the expiration of its eight PLMRS station licenses. While the Commission’s investigation into the operations after license expiration was ongoing, Constellium discovered and then reported that eight special temporary authorizations and four other PLMRS authorizations held by Constellium underwent a transfer of control without receiving the FCC’s prior consent due to an initial public offering involving its parent that resulted in the indirect parent of Constellium dropping from above 50% ownership to less than a majority interest, i.e., loss of positive control.

The FCC’s May 2014 NAL sought a forfeiture of $294,400 – more than twice the settlement amount – for Constellium’s apparent violations of Sections 301 and 310(d) of the Communications Act, as amended, and Sections 1.903(a) and 1.948(a) of the FCC’s rules. The Enforcement Bureau agreed to reduce the proposed penalty in part noting that, as a result of the post-NAL negotiation, it accepted Constellium’s argument, which the Bureau had rejected leading up to the NAL, that the penalty should reflect operation of four unauthorized operations rather than eight based on the fact that the company eventually was able to consolidate eight of its PLMRS authorizations (i.e., those that had previously expired) into only four permanent authorizations. It also appears likely that Constellium’s agreement to enter into a consent decree had a salutary effect on the penalty reduction. In the consent decree, the company agreed to obligations common to such decrees, and it also specifically agreed to develop a database to track all of the company’s FCC licenses and the corresponding expiration dates. The common terms with most other decrees include development of a compliance training program that includes annual training obligations for all covered employees. Constellium also made an admission of liability, a standard term for settlements during Enforcement Bureau Chief Travis LeBlanc’s tenure.

Under the FCC’s rules, operation of wireless radio stations must be authorized by the FCC prior to commencing operations and any transfers of control of wireless radio authorizations, no matter what form the transfer of control takes, must receive prior FCC consent. The Bureau noted that these rules are in place to protect licensees from harmful interference and to promote the efficient administration of spectrum. In light of the FCC’s continued enforcement efforts, it is imperative that any company operating wireless facilities be aware of the FCC’s licensing requirements and their regulatory obligations attendant to their day-to-day operations. Similarly, companies should remain vigilant to follow preapproval filing and consent regulatory requirements not only in the context of traditional sales and acquisition transactions, but also other corporate activities, such as an IPO, which may result in the transfer of control of FCC licenses.

According to the Consent Decree, the Canadian National Railway discovered that on several occasions it had acquired control of a number of wireless radio licenses without securing the FCC’s prior consent to the transactions. Following this discovery, the company initiated a comprehensive internal audit of its FCC authorizations, uncovering multiple unauthorized transactions and system modifications going back to 1995. Additionally, the company found it had deployed several hundred wireless radio stations without first obtaining licenses, with some violations dating back as early as 1990. The Consent Decree indicates that most of the affected radio stations remained in operation in 2013.

In February 2013, the company voluntarily disclosed its findings to the Commission in connection with multiple requests for Special Temporary Authority and remedial filings. What followed was a Bureau investigation into the full extent of the company’s noncompliance. The investigation confirmed that Canadian National Railway completed more than a dozen substantial and pro forma transactions and deployed, modified and/or operated hundreds of wireless facilities without FCC approval.

While the investigation did not uncover any evidence of interference complaints resulting from the unauthorized operations, the company nevertheless acknowledged its extensive noncompliance. The FCC described the “scope and duration of these unauthorized operations” as “unprecedented in the history of the Commission.” And the Commission’s response was equally as ground-breaking: Canadian’s civil penalty “represents the largest in FCC history” for a wireless operator’s unauthorized radio operations and unauthorized transfers of control. In addition to the payment of civil penalties, and an express admission of rule violations, the company also agreed to implement a three-year compliance plan and to maintain the internal compliance plan that was implemented as a result of the internal audit.

While the noncompliance and civil penalty may have been unprecedented, many things included in the consent decree are becoming part of the new normal. As with several other consent decrees we blogged about in recent weeks, the settlement included an admission of liability by Canadian National Railway and referred to monetary payments as “civil penalties” rather than “voluntary contributions.” This is further evidence of the substantial shift in the Enforcement Bureau’s policy for settlement like negotiating consent decrees. Wireless licensees should pay close attention to these actions and take them into consideration when choosing a course of action in the face of discoveries about possible nonconformance. The Canadian National Railway Consent Decree also serves as a strong reminder that any company or enterprise making an acquisition should always conduct sufficient due diligence to ascertain whether radio operations requiring FCC licenses are involved and, if so, to ensure that the proper authorizations have obtained and maintained and that any FCC procedural requirements connected to the proposed acquisition are identified and followed.