Daniel H. Overmyer

In 1947, Overmyer opened his first warehouse in Toledo and later grew his warehouse chain to Akron and Canton, Ohio. Soon after that expansion, Overmyer founded the D. H. Overmyer Warehouse Company, further enlarging his company to include all of Ohio. During the 1960s, Overmyer's warehouse company quickly broadened across 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, as an individual rather than under a corporate name, he applied to the Federal Communications Commission (FCC, Commission) for Toledo's first ultrahigh frequency (UHF) television station on channel 79—the last available commercial TV channel allocated by the FCC to Toledo.[6][7]Toledo had two commercial very high frequency (VHF) stations: CBS affiliate WTOL-TV and WSPD-TV (now WTVG), an ABC affiliate; the stations shared NBC programming.[8][9] UHF television stations were a speculative investment due to the low number 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 broadcasting that occurred in the 1950s. This failure was blamed on poor planning and decisions made by the FCC when the UHF frequency band was made available for television broadcasting in 1952.[12][13][14][15][16][17] After the passage of 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 (Producers) and Springfield Television Broadcasting Corporation (Springfield) 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 petitioned the FCC to add the issue of Overmyer's financial qualifications to the hearing. Springfield claimed the bank loans Overmyer intended to use were not firm commitments, and the warehouse company had insufficient funds to make loans 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] Under different circumstances, the U.S. House of Representatives would hold a hearing in 1968 to examine these same financial qualifications in greater detail. In September 1964, Overmyer reached an agreement with Producers and Springfield to withdraw their applications in return for his payment of their out-of-pocket expenses.[26] On March 11, 1965, Overmyer was awarded the construction permit for channel 79.[27] The requested call letters were WDHO-TV based on Overmyer's initials.[28][29] On August 6, 1965, Overmyer received approval from the FCC to change from channel 79 to 24. WDHO-TV signed on the air May 3, 1966, as an independent station with no network affiliation.[30][31][32] On April 28, 1966, before WDHO-TV began operation, Overmyer applied to the FCC to change its ownership from himself as an individual to D. H. Overmyer Telecasting Company.[33] WDHO-TV lost $1.3 million during its first two years of operation.[34]

In June 1964, Robert F. Adams, the executive vice president, announced the formation of the D. H. Overmyer Communications Company (Overmyer Communications Company). The company was solely owned by Overmyer and headquartered in New York City. The company began to acquire the full complement of TV properties allowed by FCC rules.[35][36] The FCC limited ownership to seven TV stations—no more than five VHF. Overmyer Communications Company purchased—from existing owners pending the FCC’s approval of the transfers—the construction permits of three nonoperational UHF-TV stations: 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] The Overmyer Communications Company also applied to the FCC requesting 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 stations. If approved, the eighth 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 submitted February 12, 1965).[50][51] After the FCC denied his waiver request, Overmyer withdrew the application for the Stamford station on May 11, 1965, and the WAND-TV transfer application was resubmitted on May 18, 1965.[52][53][54]

In 1965, the FCC approved several construction permit transfer applications and one new construction permit for Overmyer Communications Corporation: 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 (FCC granted channel 58); and KBAY-TV in San Francisco on October 20 (Overmyer held 80 percent[55]).[56][57][58][59][60] 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—retained 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.[61] Overmyer's Dallas application was contested by two other applicants, Grandview Broadcasting Company and Maxwell Electronics Corporation. The FCC designated the Dallas construction permit applicants for a comparative hearing to be held on March 14, 1966.[62] Grandview Broadcasting withdrew their application leaving Overmyer and Maxwell Electronics as the remaining competitors for the construction permit.[63] 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.[64] Maxwell Electronics was awarded channel 33, and on October 1, 1967, KMEC-TV began operation. Overmyer switched his application to channel 27 but had to accept the possibility of competing applications. On March 14, 1967, the FCC announced that the McLendon Corporation, partially owned by Gordon McLendon, had filed an application in competition with Overmyer for channel 27 in Dallas. [65] McLendon Corporation owned 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.[66][67] On December 13, 1967 the FCC awarded the channel 27 construction permit to McLendon.[68]

The stations were incorporated separately as subsidiaries under the Overmyer Communications Company, but D. H. Overmyer Telecasting Company separately owned WDHO-TV:[69][70]

D. H. Overmyer Broadcasting Co., Inc., a Texas corporation (KJDO-TV, Houston)

D. H. Overmyer Communications Co., Inc., a Georgia corporation (WBMO-TV, Atlanta)

D. H. Overmyer Broadcasting Co., Inc., an Ohio corporation (WSCO-TV, Cincinnati)

D. H. Overmyer Communications Co., Inc., a Pennsylvania corporation (WECO-TV, Pittsburgh)

D. H. Overmyer Communications Co., Inc., a California corporation (KEMO-TV, San Francisco)

The call letters chosen for the stations were the initials of Overmyer's family members.[71] The company began large-scale purchases of equipment for the TV stations in the fall of 1965.[72][73][74][75] During 1966, purchases of programming for the stations were made for $3 million.[76] Sites had been established for most of the stations by late 1966.[77] Construction of the stations in Atlanta and Pittsburgh had been delayed due to the difficulty in 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 allocation of many UHF channel assignments, including granting Ovemyer's request.[80] A report made in January 1967 documented the current state of construction for the TV stations:[81][82]

KEMO-TV San Francisco

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

WSCO-TV Cincinnati

   The transmitter site on Bald Knob in Cincinnati had been purchased.
   The transmitter building construction had been completed.
   The transmitter had been delivered but not installed.
   The antenna had been constructed but had not been delivered.
   The tower was constructed but not delivered; it would be erected in April 1967.[83]
   The studio location at 1150 W. Eighth St. Cincinnati was chosen, but no lease had been signed.[84][85]
   No studio remodeling had started.
   Studio equipment had been delivered and was in storage.[86]

WECO-TV Pittsburgh

   The site for the transmitter and studio (located together) at the old WENS-TV location on Ivory Avenue in Pittsburgh had been selected.[87][88][89][90]
   Negotiations to purchase site and building were underway.
   Some equipment had been delivered.
   No construction had started.

WBMO-TV Atlanta

   The site for the transmitter at Briarcliff Road and Shepherds Lane in Atlanta had been selected but not leased.[91]
   The site for the studio (former Shepherd family home) on Briarcliff Road in Atlanta was under negotiation but no lease was signed.[92]
   Some equipment had been delivered.
   No construction had started.


KJDO-TV 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 that the company managing the construction of his warehouses was in financial difficulty. Payments to the subcontractors had stopped, which resulted in liens being placed on the unfinished warehouse properties in October 1966.[93] All warehouse construction ended, and no funding sources were found to finance the expansion of the warehouse company. D. H. Overmyer Company Inc. (Ohio), without legal obligation, guaranteed the $6 million debt assumed by its warehouse subsidiaries from the Green & White Construction Company.[94][95] Guaranteeing the debt removed the liens on the buildings, and warehouse construction was resumed. However, the increased debt load restricted the funds needed to finance further growth of the warehouse company and the TV stations. The original plan was for the warehouse company profits to aid in financing the construction of the TV stations and their early operational deficits. By assuming the Green & White debt, Overmyer was forced to redirect the warehouse profits into paying off that obligation over several years.[96] Therefore, the Overmyer Communications Company sought outside funding to continue constructing the five unfinished television stations.[97]

In March 1967, Overmyer held negotiations with A.V.C. Corporation (AVC) to sell an interest in five of his construction permits. None of the stations involved in the sale had been placed in operation. In 1963, the American Viscose Corporation (Avisco), a manufacturer of industrial fibers, sold its manufacturing operations to FMC Corporation. The investments owned by the American Viscose Corporation were not included in the sale, and the company name was changed to A.V.C. Corporation; it was a publicly-traded investment company with its stock listed on the American Stock Exchange and headquartered in Wilmington, Delaware. The manufacturing operations of American Viscose continued under its name and became a division of the FMC Corporation. [98][99][100] 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 desired to purchase total ownership of the construction permits but was turned down by Overmyer during the sale negotiations.[101] The consideration for Overmyer's stock was 80 percent of the out-of-pocket expenses approved by the FCC—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 acquire the remaining 20 percent stock in the stations and received the assignment of Overmyer's option to purchase Corwin's 20 percent stock in KEMO-TV.[102] Joseph L. Castle, an employee and later partner with the Philadelphia investment banking firm of Butcher & Sherrerd, acted as a broker for the sale. Castle was also a stockholder in the Philadelphia UHF station WPHL-TV.[103][104][105][106][107][108][109][110] On March 28, 1967, AVC and Overmyer signed the Stock Purchase and Loan Agreements to transfer control—if the FCC approved—of the Overmyer subsidiary corporations to AVC.[111]Butcher & Sherrerd also held stock in WPHL-TV, and on May 1, 1967 partner Howard Butcher III joined the board of directors of AVC Corporation.[112][113] After signing the sale agreement with Overmyer, AVC formed a wholly-owned subsidiary, the U.S. Communications Corporation, headquartered in Philadelphia (incorporated in Wilmington, Delaware).[114][115] On June 6, 1967, AVC assigned to U.S. Communications Corporation all of the contractual rights and options negotiated with Overmyer in the March 28, 1967 agreement.[116] On June 8, 1967, AVC arranged a merger of Philadelphia Television Broadcasting Company (owners of WPHL-TV) into U.S. Communications Corporation, which—with later FCC approval—would result in a total transfer of six stations in the top fifty markets to a single owner.[117] If the FCC allowed the sale, U.S. Communications would control the five former Overmyer subsidiaries and own all of the stock in a newly-formed subsidiary corporation (PTBC Inc.) that would hold WPHL-TV. On June 30, 1967, the FCC received Overmyer's application for the sale of 80 percent of the stock in each of his five subsidiary corporations that were the permittees of the construction permits.[118] A majority of the FCC commissioners voted to approve both the Overmyer and WPHL-TV transfers to U.S. Communications Corporation on December 8, 1967.[119][120][121][122][123][124] 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 subsequently changed to reflect the majority ownership by U.S. Communications Corporation.[125]

The FCC's consent to the transfers was controversial because of waiving its Interim Policy Concerning Acquisition of Television Broadcast Stations—the so-called Top Fifty Interim Policy—which was adopted on June 21, 1965. In addition, the transfer of the construction permits from Overmyer to U.S. Communications was also questionable because the sale price and option agreement might violate FCC policy. The Top Fifty Interim Policy was applied while undergoing public comment before possible adoption as a rule. It restricted ownership to seven TV stations (not more than five VHF), with only three (no more than two VHF) allowed in the top fifty markets. It was adopted to promote diversity of ownership and competition in the largest media markets.[126][127][128] The Top Fifty Interim Policy required a hearing if the application would result in ownership exceeding the policy's limits; however, a waiver of the hearing requirement was possible if the applicant made a sufficient showing that an exemption from the policy served the public interest. The stated standard of a sufficient showing was a "compelling affirmative showing that the grant of the application was justified."[129][130] The FCC had waived the hearing requirement of the Top Fifty Interim Policy for the transfer of Overmyer's construction permits to U.S. Communications Corporation.[131] The FCC had awarded Overmyer's permits in 1965 under the previous policy that limited the applicant to seven TV stations (not more than five VHF) with no restriction on market ranking. Since the adoption of the Top Fifty Interim Policy, a majority of the FCC commissioners had voted to grant a waiver of the hearing requirement and approve the transfer in all eight prior cases where it had arisen in transfer proceedings.[132][133][134][135] The FCC's approval for the transfer of twice the allowed number of construction permits in the Overmyer case was addressed by FCC Commissioner Kenneth A. Cox (D-WA) in his dissenting statement:

The majority'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.[136]

The FCC had a long-standing policy limiting compensation in the sale of construction permits—as opposed to operational TV stations—to legitimate 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.[137]

The out-of-pocket expense policy was adopted to prevent the acquisition and subsequent sale of construction permits as a profit-making device. The FCC viewed this as obtaining a permit under false pretenses, purely for profit, without providing the promised broadcast service to the public. The FCC approved an expense claim of $1,331,900.00, so the final sale price was $1 million.[138] Half of the expenses were submitted using documented evidence proving they were incurred in furthering the permits. The other half lacked this documentation and was based instead on an unusual approximation method the FCC had never encountered before.[139] The undocumented portion involved services provided for the five permittees by the other Overmyer companies apart from the communications company. Although these expenses occurred from July 1964 through March 1967, the construction permit transfer application filed with the FCC stated that records were only available from a base period of September–December 1966.[140][141][142]The Overmyer Company Inc. managers created a formula to approximate the undocumented portion of the out-of-pocket expenses using the available records from the 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 expended for the communications company.

2. The percentage from step 1—unique for each employee—was multiplied by the employee's salary paid during the base period.

3. This portion of each employee's salary from step 2 was added to those (calculated in the same way) 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 in order to form 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—for all departments—were added to form the total expenses attributable to the communications company's activities—that were performed by the other Overmyer companies—during the base period.

The total base period expenses found in step 6 were used to approximate the entire undocumented portion of the out-of-pocket costs. The estimated activity levels of communications efforts during several intervals outside the base period were compared to those within the base period. These resulting activity percentages were used to apply several modified base period expenses to intervals outside the base period—where no records were available. This process estimated the expenses of Overmyer's other companies for services they provided for the communications company from July 1964 through March 1967. A deduction was made to account for communications activities unrelated to the transferred permits. The result was the reimbursable portion of the undocumented out-of-pocket expenses.[143][144] The FCC's acceptance of this unusual method despite the lack of evidence supporting half of Overmyer's expenses illustrated weaknesses in the out-of-pocket expense policy.[145][146][147] In his dissenting opinion, 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 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.[148]

Cox's comment on the unlikelihood of AVC acquiring a block of construction permits (or operational stations) outside of this transfer illustrates 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 possible buyers as being more desirable from a public interest aspect. Essentially, the FCC only approves or denies that particular transaction.[149] By contrast, in granting new construction permits, the FCC prefers applicants with strong local ownership and management. When multiple applicants exist for a TV channel allocation, the FCC holds a comparative hearing where the applicants compete on several criteria. The FCC can then select the best applicant to serve the public interest. AVC had no local connection in any markets involved in the Overmyer construction permit transfers. Without this transfer and assuming, channels were even available in these markets, AVC would probably encounter comparative hearings with multiple local applicants. After considerable expense and delay, it might not be granted any construction permits, and it would be inconceivable to obtain six in the fifty largest markets.[150] The restriction of not examining alternative applicants in station and construction permit transfers created many situations where a transfer was approved to a party who probably would not have prevailed in a comparative hearing.[151]

The sale also included a $3 million loan to 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. 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.

So for these reasons, as stated above, 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 staff ever reached that stage. [152]

In later congressional testimony, Cox criticized both of these aspects of the sales agreement as affording a profit in violation of the FCC's out-of-pocket expense policy and indicated a hearing should have been held to examine these matters more closely.[153] 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.[154]

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."[155]

FCC Commissioner Lee Loevinger (D-MN) wrote the only statement in support of 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.[156]

Three of the four FCC commissioners who voted to approve the construction permit transfers did not write concurring opinions: James Wadsworth (R-NY), Robert Lee (R-IL), and Rosel Hyde (R-ID), chairman of the FCC.

To regulate broadcast services in 1967, the FCC had seven commissioners—the Commission—appointed by the president and assisted by the Broadcast Bureau (Bureau) staff; the Bureau was responsible for investigating applications and making recommendations to the commissioners who vote on final decisions.[157][158] The Commission cast a four-to-three vote to approve the sale. The written statements of the FCC commissioners formed much of the basis of 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), which oversees the FCC, called the Commission to a hearing regarding their consent to the transfer. The initial hearing covered the concerns expressed by the dissenting commissioners regarding the waiver of the Top Fifty Interim Policy and the profit potential for Overmyer in violation of FCC policy.[159] At the December 15, 1967 meeting, Staggers said additional hearings would be held in the next congressional session where principals in the transfer of construction permits would be asked to testify.[160][161] Hyde reminded the Subcommittee that the FCC had a priority to assist 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.[162]

In a dissenting statement submitted during a previous case similar to Overmyer, Cox cautioned the Commission regarding their repeated excessive 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."[163]

In this case, the desire to encourage rapid UHF television development conflicted with the FCC's Top Fifty Interim Policy on the concentration of ownership and the need for further investigation of this transaction. Several Subcommittee members questioned Hyde regarding the decision of the majority not to hold hearings despite indications that more extensive investigation of the construction permits transfers was warranted. Hyde testified that—in his opinion—the entire transfer would be abandoned if a hearing was ordered.

The following exchange between Staggers and Hyde reveals 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.[164]

A question from Subcommittee member Rep. J. 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.[165]

A question from Subcommittee member Rep. Paul Rogers (D-FL), indicated 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.[166]

Hyde explained why holding a hearing would likely end 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.[167]

Subcommittee member Rep. John Dingell (D-MI) questioned 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.[168]

The Stock Purchase Agreement between Overmyer and AVC included a provision allowing either party to terminate the agreement if the FCC did not approve the sale of the construction permits within six months of filing the transfer application.[169] If the FCC ordered a hearing, the delay would have likely been substantially beyond six months and perhaps years.[170]

In a later exchange 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, 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.[171]

The 3-Year Rule, 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 rule (Rule 1.365, was subsequently moved to 1.597) on March 15, 1962, to discourage trafficking in permits of operational stations.[172][173] The rule was intended to stop the high turnover rate in ownership of stations used to produce quick profits rather than providing service in the public interest. It did not apply to the transfer of construction permits, so it was not relevant in the Overmyer investigation. The FCC's out-of-pocket expense policy was intended to limit trafficking in construction permits.[174][175]

In a further exchange with Rogers, Hyde revealed his opinion of why Overmyer retained 20 percent of the stations rather than selling for the entire out-of-pocket expenses. Hyde's answer essentially agreed with Cox's dissenting statement regarding the true nature of the Stock Purchase and Loan Agreements:

  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.[176]

In a subsequent exchange with Hyde, Rogers indicated 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.[177]

Rogers continued to press Hyde that Overmyer's 20 percent retained stock, combined with the option for U.S. Communications to purchase at a later time, was a device to circumvent the Commission's out-of-pocket expense policy:

  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 investigaion, 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.[178]

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.[179]

Congress and the FCC had been concerned about trafficking in broadcast station permits and licenses for many years. Trafficking occurs when construction permits or operational stations are acquired and traded primarily for profit rather than providing service to the public as required by the Communications Act of 1934.[180][181][182] That possibility existed in this case because Overmyer never placed the stations on the air and seemingly sold the permits at a profit to AVC.

The congressional investigation was to determine if the FCC adequately fulfilled its responsibility to examine these transactions for trafficking before approving the transfer of the permits and determine if any changes in the Communications Act of 1934 were needed to prevent it in the future.[183]

On February 7, 1968, the FCC terminated the Top Fifty Interim Policy limiting TV station ownership in the largest TV markets. Although the proposed rule was dropped, the FCC retained the provision 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."[184][185][186] 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 sections of 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. Among the provisions was to require FCC hearings on transfers, limit sale prices of permits and stations to an FCC determined fair market value, strengthen financial disclosure requirements for transferors, and make transfers open to any interested parties rather than being restricted, under then-current law, to one selected by the transferor. An additional provision 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 FCC would also be required to express specific justification for each individual transfer, illustrating how it served the public interest requirement of the Communications Act of 1934.[187][188][189]

On January 15, 1968, at Overmyer's New York City headquarters, the closing for the sale of the five construction permits to U.S. Communications Corporation was held.[190] Because AVC was an investment company with no experience in television broadcasting, its relationship with U.S. Communications was generally limited to providing financing.[191] Included in the management team of U.S. Communications Corporation were two of the former owner-managers of WPHL-TV, Leonard Stevens and Aaron Katz, who brought their broadcasting experience to the station group as vice presidents.[192][193][194][195][196] In an article in Broadcasting magazine on June 19, 1967, Katz 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 and in the black 'within the next three-to-four years.' "[197] Castle, of Butcher & Sherrerd who brokered the sale of Overmyer's construction permits to AVC, became a director and chairman of the board of U.S. Communications Corporation.[198] Frank H. Reichel Jr., president of AVC, was appointed president of U.S. Communications Corporation. After completion of the transfers, AVC owned 70 percent of U.S. Communications Corporation, while the former owners of WPHL-TV held the remaining 30 percent of the company[199] Overmyer had no ownership interest—or management role—in AVC or U.S. Communications Corporation; however, he owned 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).[200][201][202][203][125] Overmyer did not own any interest in WPHL-TV in Philadelphia or KEMO-TV in San Francisco. Twenty percent of the U.S. Communications of California Inc. was held by Corwin—Overmyer's original partner in KEMO-TV. U.S. Communications Corporation had an option to buy Overmyer's remaining 20 percent interest in the stations and an assignment of his option to purchase Corwin's interest in KEMO-TV.[204][205][125][206][207][208][209][210][211] The U.S. Communications Corporation could exercise the Overmyer option between January 16, 1971, and January 15, 1972.[212] Payment of the interest on the $3 million loan was due until U.S. Communications exercised the option or the option period expired. If U.S. Communications did not pick up the option, the $3 million loan principal would be due. If the U.S. Communications Corporation did pick up the option, then the loan principal would be due, and the $3 million loan payoff amount would be reduced by a purchase price calculated using a formula. The sale price calculation was 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.[213]

During the option period, Overmyer could require U.S. Communications to make an immediate decision whether or not to exercise the option. If U.S. Communications declined the option, then the loan principal would be due. If U.S. Communications picked up the option, then the purchase procedure described previously would be activated.[214] The highest purchase price was limited to $3 million, which happened to be the amount loaned to Overmyer. The loan was secured by second mortgages on twenty-three of Overmyer's warehouse properties and his remaining 20 percent interest in the TV stations.[215][216] The U.S. Communications Corporation never executed their option to buy the 20 percent owned by Overmyer and Corwin in the stations.[217] Overmyer did repay the $3 million loan in full.[218]

Four of the five stations transferred from Overmyer to U.S. Communications Corporation signed on in 1968–69: KEMO-TV channel 20 in San Francisco (no Overmyer ownership interest) on April 1, 1968; WXIX-TV channel 19 in Cincinnati on August 1, 1968; WPGH-TV channel 53 in Pittsburgh on February 1, 1969; and WATL-TV channel 36 in Atlanta on August 16, 1969. The U.S. Communications group also included WPHL-TV channel 17 in Philadelphia (no Overmyer ownership interest), which began operation on September 17, 1965.[219][220][221] The FCC deleted the construction permit of KJDO-TV channel 45 in Houston—which was never constructed—on October 13, 1971.[222][223] With the exception of the studio location for WXIX-TV in Cincinnati, U.S. Communications used the studio and transmitter locations selected by Overmyer.[224][225][226]

Allegations made in dissenting statements by FCC commissioners that the FCC failed to protect the public interest in approving the transfers of the Overmyer permits to U.S. Communications Corporation attracted the attention of the U.S. House of Representatives, which resulted in a congressional investigation in 1968.[227][228][229][230][231][232][233] Additional hearings on the Acquisition and Transfer of Five Overmyer Television Construction Permits[234] were held in Washington, D.C. on July 16, 17, 19, 31, and August 1 of 1968. Overmyer and several associates, along with the FCC's Broadcast Bureau staff and commissioners, testified before the Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce House of Representatives.[235][236][237][238] The investigation was wide-ranging: it expanded beyond the initial concerns of the dissenting FCC commissioners into examining Overmyer's financial qualifications to obtain the original construction permits and irregularities regarding applications for additional time to construct the stations. The Subcommittee investigators also looked into the Stock Purchase and Loan Agreements and the potential profit for Overmyer in violation of FCC policy. A central issue explored was Overmyer's method of calculating the out-of-pocket expenses. The Overmyer Company's managers based half of the expenses on opinion instead of hard documented evidence.[239] The Bureau's report acknowledged this approach was unusual but had not recommended the Commission hold a hearing to examine the method in detail.[240] Their view of out-of-pocket expenses was outlined in a Bureau Memorandum 6738 (November 8 and 15, 1967) to the Commission recommending approval of the transfer. However, instead of judgment from an in-depth analysis, the primary justification was Overmyer's enthusiasm for 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.[241]

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."[242] During the congressional hearings, the following testimony given by Edward Hautanen, an attorney with the Bureau, responding to questions from Robert Lishman, chief counsel for the Special Subcommittee on Investigations, revealed no investigation was done by the Bureau 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.[243]

In later questioning by Subcommittee member Rep. Hastings Keith (R-MA), Hautanen revealed that because of certification by the applicant, the documents submitted to the FCC are generally 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.[244]
 

While under oath, Thomas J. Byrnes, vice president of The Overmyer Company, answered a question regarding the justification for using the out-of-pocket expense approximation formula and confirmed his previous assertion that expense records did not exist outside of the four-month base period from September–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.[245]

In response to a question from Keith regarding Overmyer's out-of-pocket expenses, Cox testified that the FCC should have held a hearing:

  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.
[246]

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

[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.[247]

The Subcommittee also considered Overmyer's failure to include the required information in applications filed with the FCC for extension of time to complete construction of the stations. Investigators indicated that the extension applications should have revealed—by Overmyer filing an amendment to them—the financial conditions preventing the completion of the stations and the intention to sell the construction permits. The extension applications were never amended later to indicate the construction permits had been sold to AVC. The Subcommittee said that these omissions constituted a violation of FCC Rule 1.65, which was created to keep the Commission notified of all changes in the information needed to make decisions on the applications.[248] Rule 1.65 specifically required the filing of amendments to applications themselves to keep the Commission notified of pertinent changes. Investigators viewed this failure as deliberate concealment of facts to keep the permits in salable condition.[249] Overmyer filed the contract for the transfer of control for the permittee corporations to U.S. Communications with the FCC by letter rather than an amendment to the extension applications; however, the FCC was unaware the letter and contract were placed in their ownership files, and they were overlooked in supplying documents to the Subcommittee. The Bureau considered the violation of Rule 1.65 as only a technical infraction because Overmyer filed the transfer contracts with the FCC on April 28, 1967, which was within thirty days as required by the rule. 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."[250] The Subcommittee indicated that the unusual aspects of this transfer should have required a hearing, and the FCC had accepted the application without verification of the supplied information. Hyde said the Top Fifty Interim Policy was waived to ensure the five stations could quickly make it on the air. He also cited the All-Channel Receiver Act as justification for the waiver because it prioritized UHF-TV development. He testified that imposing a hearing, which would increase cost and result in lengthy delays, would likely result in withdrawal of the transfer application; comparative hearings would then be required to examine new applications, which would result in long waits to start a new TV service. Hyde summarized his views on the hearing waiver:

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.[251]

Hyde also said a hearing was unnecessary because all of the information needed for the Commission to vote on the transfer was available. Furthermore, the Bureau found the loan and option arrangements were acceptable based on precedents, collateral, and interest charges at the prevailing rate.[252][253][254][255][256][257][258][259][260] In its memorandum to the Commission recommending the approval of the transfer, the Bureau said the loan was partially justified by Overmyer's genuineness of dedication to UHF:

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.[261]

Cox testified in the congressional hearing 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.[262]

During questioning by Subcommittee member Rep. Brock Adams (D-WA), Cox characterized the true purpose of the loan and stock option arrangement:

  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.[263]

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

  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.[264]

The Stock Purchase and Loan Agreements between Overmyer and AVC stated that the FCC must grant the transfer of all five construction permits without further conditions or modifications adverse to AVC—unless the changes are waived by AVC.[265]In addition, a condition required prior to closing was that "AVC shall have made the loans to Overmyer Inc. or its subsidiaries called for under the Loan Agreement." Clearly the loan to Overmyer was—in fact—a condition of the sale.[266][267] The precedents referred to by Hyde were three transfers that included partially retained stock and an option potentially resulting in a profit above out-of-pocket expenses: WKBF-TV, Channel 61, Cleveland, September 19, 1967; WOGO-TV, Channel 32, Chicago, January 19, 1965; and Overmyer's arrangement with Corwin for KEMO-TV, Channel 20, San Francisco, October 20, 1965.[268][269][270][271] However, the loan provision that allowed Overmyer an immediate payment on the possible future value of his 20 percent share was not present in any of the precedents cited by the Broadcast Bureau as justification for approving his retention of the stock.

Despite their justifications for approving the transfer, the FCC proposed new rules that would tighten control over construction permit transfers.[272]

On May 19, 1969, The Subcommittee Report, Trafficking in Broadcast Station Licenses and 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 those permits to the U.S. Communications Corporation. [273] The report criticized the FCC's consent to the transfer without holding a public hearing to investigate the underlying nature of the transaction. It stated 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."[274] The investigation first focused on the initial grants of the permits to Overmyer in 1965. The report stated, "Each of his applications submitted to the Commission failed to supply the appropriate financial information required."[275] The Subcommittee investigators indicated that Overmyer's warehouse company financial statements were not audited by outside accountants, which created doubts regarding the actual assets available for the construction and operation of the broadcasting stations. Also, a detailed examination of letters from banks used to indicate loan commitments were—in fact—not solid binding agreements to lend funds as required by FCC policy.[276] Overmyer's personal balance sheet, which was required by the banks to guarantee the loans needed to construct and operate the stations, indicated assets over liabilities of only $963.[277] In addition, the Subcommittee said 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 required when including the advertising income in the financing plan for construction and operation of the stations.[278] The FCC established this new financial standard in the Ultravision Decision (FCC 65-581)[279] released on July 2, 1965:

[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.[280]

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 issued 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.[281]

The panel had initially proposed applying an enhanced standard of financial qualification only to applicants for UHF TV stations in markets with three (or more) commercial VHF TV stations. They also recommended that the applicant must show estimated revenue for a three-year period and establish the basis for that projection.[282][283] In the Overmyer case, 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 rule since they had been awarded before Ultravision was instituted. Although the new standard 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.[284]

The estimated costs of station construction and operation exceeded the actual available funds presented by Overmyer in the applications to meet the Ultravision standard.[285] Despite Overmyer's lack of financial showing, the Bureau made estimates of station income to justify there was sufficient financing to award the permits. In an attempt to mitigate the lack of showing by Overmyer for advertising income, the Broadcast Bureau 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."[286] The Subcommittee noted the Broadcast Bureau's estimates of advertising income were made with no more evidence than Overmyer submitted in his applications. The 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."[287] Despite FCC requirements, Overmyer's applications did not provide statements of net income for him personally or for the warehouse company for the last two years.[288] The Bureau ignored this omission and never requested the information before recommending the Commission approve the construction permits. 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,”[289] Martin I. Levy, FCC Chief, Broadcast Facilities Division, stated. None of the five applications contained written evidence that the required analysis had been performed. [290]

The report 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."[275] The Subcommittee characterized the loan and stock option arrangement with the U.S. Communications Corporation as a "sham," guaranteeing Overmyer a profit in violation of the FCC's out-of-pocket expense policy.[291] Under the Communications Act of 1934, the FCC can consent to a construction permit transfer only after determining it is in the public interest.[292] The Subcommittee insisted the FCC had abdicated this responsibility by not adequately investigating the profit potential of the transaction either inside or outside of a hearing.[291][293][294][295] The investigators' analysis revealed that if the U.S. Communications Corporation picked up the option, using either of the two option price methods, the purchase price was designed to exceed $3 million, so the loan would not have to be repaid.[296][297] 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."[298] The Subcommittee concluded the stock option and loan arrangement was obviously 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] 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.[291]

The report included a detailed examination of the out-of-pocket expenses claimed in the sale of permits to the U.S. Communications Corporation. The investigators found overcharges for services, charging for services never rendered, and expenses listed that did not apply to the actual permits transferred.[299] The FCC had "accepted without question the unverified material Overmyer submitted in support of these expenditures."[300] The Subcommittee characterized the FCC's failure to examine behind the application:

[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.[300]

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.[301]

The Subcommittee noted that Overmyer had not filed the required amendments to applications for 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.[302]

The FCC's Top Fifty Interim Policy required a hearing if an application's approval would produce ownership of more broadcast properties than the proposed rule would permit. The hearing requirement would be waived if the applicant met the standard of a "compelling affirmative showing" that the public interest would be served: to satisfy this standard, Overmyer maintained that "transfer of the permits to individual buyers is impractical, and the resources of a financially strong owner are needed to meet competition."[303] However, Overmyer did not explain why selling to individual owners, which would not violate the Top Fifty Interim Policy, was impractical. In previous requests to waive the Top Fifty Interim Policy, some applicants presented efforts to find buyers that would not violate the policy's ownership limits. Overmyer did not document any details of specific attempts to sell the permits to multiple buyers that would each satisfy the policy. Essentially, Overmyer's waiver justification was that creating a group owner was required to ensure the stations were successful. The Bureau reasoned the waiver was warranted to "foster the development of UHF television stations" and "be consistent with the Commission's effort to provide a more competitive nationwide television service to the public."[304] The FCC had previously stated that the success of UHF stations should not be dependent on group ownership. The Top Fifty Interim Policy was—in part—created to limit the concentration of ownership in the expanding UHF service.[305] However, the FCC's acceptance of Overmyer's justification for the waiver based on the need for group ownership went directly against the policy's stated objective. The inference was that—in this situation—the FCC's goal of rapidly expanding UHF service superseded that of the Top Fifty Interim Policy. Furthermore, the Bureau noted that the Commission had granted waivers in all previous cases, so they could in this case as well.[306] The Bureau stated, "[T]he '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."[307] The Subcommittee noted that 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."[308] The Subcommittee maintained that in 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."[309] 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] 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.[310]

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."[311] Also suggested were new legislation and changes in FCC rules that would prevent profit from construction permit transfers.[312] Although Congress did not pass any legislation changing the Communications Act of 1934, in March 1969, the FCC changed many policies and rules to prevent the methods exposed during the investigation that afforded a profit to Overmyer. A hearing will be required if there is a question of actual or potential financial gain above the provable out-of-pocket expenses in the sale of a construction permit. In particular, where a seller keeps an interest in the construction permit that may be disposed of later at a profit would be carefully scrutinized. 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 retained interest. Hearings would be required, 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 interest retained by the seller. A hearing is also required if the transfer agreement includes an option for the seller of a partial interest to later purchase from the transferee additional stock in the station. FCC Rule 1.597 (e) and (f) were enacted to carry out these provisions. Section (f) (4) addressed the hearing requirement for options:

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.[313][314]

This rule would have forced a mandatory hearing of the Overmyer transfer case because of the option in the contract for U.S. Communications to later purchase Overmyer's 20 percent interest. The rule calls for a mandatory hearing only if an option exists in the contract for sale of a partial interest in the permit. It is interesting to note that the new rule would not prevent a seller who retains 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 requirement is to file the sale details with the FCC.[315] In addition, the existing policy preventing recovery of more than out-of-pocket expenses in the sale of construction permits was codified as a rule. Also, a new requirement was added for transfer applicants to file an itemized out-of-pocket expense list and further defined the specific expenses the FCC would approve. The transfer applicants must also declare no other agreements exist outside those disclosed in the application.[316][317]

The Federal Communications Commission held hearings investigating Overmyer lasting from 1970 until 1980.[318][319][320][321][322][323][324][325] The Commission announced on August 26, 1970, a hearing would be held regarding the transfers of construction permits from Overmyer to U.S. Communications Corporation.[326] FCC Memorandum Opinion and Order (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. [327]

The FCC did not set aside the permit transfers as recommended by the Subcommittee in their report. The control of the permits by U.S. Communications was allowed to stand while the FCC hearings were aimed solely at Overmyer. The hearing was narrowly focused only on the representations made by Overmyer to the FCC regarding the out-of-pocket expenses. The numerous other issues raised by the Subcommittee in the congressional investigation would not be addressed in the FCC hearing. Despite WDHO-TV not being directly involved in the present hearing or transferring the five other construction permits to U.S. Communications, the FCC could still revoke its license. If Overmyer fraudulently misrepresented the out-of-pocket expenses, the FCC could find him not to have the character qualifications to remain a licensee of WDHO-TV.[328][329] In August 1970, the FCC deferred WDHO-TV's license renewal, which was due to be acted upon on October 1, 1970, pending the results of the hearing.[330] WDHO-TV's initial license was issued on October 2, 1967, and the FCC considered TV stations' licenses for renewal every three years.[331][332] Overmyer petitioned the Commission and the FCC Review Board to reconsider the provisions of the hearing Order. He requested Issue No. 2 be deleted because the sale approval was more than two years old: FCC rules indicated time for judicial appeal had lapsed. Overmyer insisted that the burden of proof for Issue No. 1 be shifted to the Bureau: he noted that the Communications Act of 1934 placed the burden of proof on the Commission when the restructuring of final actions was contemplated. On February 8, 1971, the FCC' Review Board issued Memorandum Opinion and Order (71R-43), stating it had no jurisdiction to fundamentally change the nature of the hearing Order, and the Commission would have to rule on those issues. On March 3, 1971, the Commission adopted Memorandum Opinion and Order (71-213), denying Overmyer's petition to delete Issue No. 2 and stating it had the "affirmative duty" to re-examine the original transfer agreement to ensure the approval was not obtained by fraudulent misrepresentation. The Commission further said, "Both Court and Commission case precedents have recognized an inherent power to require a judgment at any time where it is procured by fraud."[333][334][335][336] On August 18, 1971, the Commission adopted Memorandum Opinion and Order (71-842) shifting the burden of proof to the Bureau due to "the seriousness of charges which Overmyer is required to answer."[337] Overmyer was required to make a prima facie showing substantially supporting his out-of-pocket expenses, but the Bureau would have to prove misrepresentation.[338]

In the Initial Decision, Administrative Law Judge Herbert Sharfman outlined his interpretation of the hearing Order:

Although the Commission used the term "misrepresentation" in its memorandum opinion of designation, 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.[339]

Testimony was given during hearing sessions held on January 24, February 7 and June 7, 8 and 9, 1972. In the Initial Decision, the Administrative Law Judge indicated 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 application filed in June 1967; no new evidence was introduced expanding the representations made in the application to the FCC or the subsequent congressional investigation. Testimony was given in the FCC hearing by Byrnes, the creator of the out-of-pocket expense approximation method, revealing that—unlike earlier representations—financial records did exist for times outside of the base period of September–December 1966. This testimony contradicted his sworn statement in the construction permit transfer application filed with the FCC in 1967 and his testimony given under oath in the 1968 congressional hearings.[340][341]The complete unavailability of records outside of the base period had been Byrnes's justification for the elaborate out-of-pocket expense formula he designed for use in the application to the FCC.[342][343] Byrnes not only changed his position on the existence of the records but further claimed they were "inaccurate" and could not be used. He admitted the documents had not been examined to determine their accuracy relative to the approximation formula.[344] 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.[345][346] Overmyer maintained the existence of the financial records was inconsequential because any costs taken from them would be no more accurate than those from the approximation formula.[347] 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.[348]

The Bureau believed Overmyer's presentation failed to carry the burden of proof required in the hearing Order. In addition, they insisted that Overmyer's concealment of the records indicated evidence of fraud in the construction permit transfer application.[349] Examining the newly revealed financial documents, the Bureau claimed the approximation formula had overstated Overmyer's out-of-pocket expenses by $227,000.00.[350]

On April 30, 1973, the Administrative Law Judge issued the Initial Decision (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."[351] However, he went on to explain the term misrepresentation: " 'Misrepresentation,' as has been emphasized, does not connote culpably false statements or intent to mislead the Commission."[352] He 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."[353] Concluding Issue No. 1, the Administrative Law Judge stated, "[I]t cannot be found that there is a reasonable concordance between the represented and 'actual' expenses. This is 'misrepresentation.' "[354] The ruling on Issue No. 2 pointed out possible limitations in the FCC's jurisdiction over contracts:

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.[355]

During this initial FCC hearing, the option for U.S. Communications to purchase Overmyer's 20 percent interest in the TV stations had expired. In addition, several U.S. Communications' stations had gone off the air and some had been sold at a substantial financial loss. KJDO-TV had never been constructed, and its construction permit was deleted.[356][357] In effect, the value of Overmyer's interest in the U.S. Communications' stations was minimal. Essentially, Issue No. 2 of the hearing Order had been resolved without intervention by the FCC. Reaching a ruling on this point, the Administrative Law Judge wrote, "Cast about as one will, one cannot grant affirmative relief under Issue No. 2."[358] However, WDHO-TV remained operational and wholly owned by Overmyer.

The Bureau recognized the narrow interpretation of misrepresentation in the Initial Decision (73D-23) failed to address possible fraudulent conduct by Overmyer, which could affect his character qualification to remain as the licensee of WDHO-TV. In October 1973, Overmyer filed a petition with the FCC Review Board requesting the hearing be terminated or send the case back to the Administrative Law Judge to resolve the character 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, 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.[359]

The Administrative Law Judge responded to the remand Order 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.[360]

No new testimony was given in the remand proceeding; the decision was based on the existing record of the initial hearing and additional written submissions from Overmyer and the Bureau.[361] The Administrative Law Judge stated, "[F]or 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."[362] 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 [Overmyer] his responsibility and guilt by 'clear, precise, and indubitable' evidence." The legal standard of "clear, precise and indubitable evidence" was a higher level than "preponderance of the evidence" used in most civil trials.[363] In addition, he noted that "to 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."[364] This view would absolve Overmyer of culpability in the concealment of financial records by Byrnes revealed in the initial FCC hearing. On May 13, 1974, the Administrative Law Judge issued a Supplemental Initial Decision (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.' "[365] In addition, there was "a complete failure of the record to inculpate Mr. Overmyer personally, directly or by implication."[366][367][368] 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."[369]

The Bureau filed an appeal for the FCC Review Board to review the Supplemental Initial Decision (74D-29). On August 21, 1975, the Review Board released Decision (FCC 75R-313). The ruling stated that the Administrative Law Judge made an error regarding the standard of proof used in the remand decision. It was noted that "[a] finding of fraudulent misrepresentation may be founded upon a less stringent standard, namely, the preponderance of the evidence."[370] 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."[371] 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."[372] 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."[373] 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."[374] In this review of the Overmyer construction permit transfer case, the Review Board issued a final ruling on both issues specified in the original hearing Order:

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.[375]

The proceedings of the FCC hearings, through the Review Board remand Order, had refined the definition of misrepresentation in the original hearing Order to be fraudulent misrepresentation—involving specific intent by Mr. Overmyer personally. Despite the Initial Decision finding that Overmyer misrepresented the expenses, the final Review Board Decision (FCC 75R-313) confirmed the Supplemental Initial Decision that cleared Overmyer in Issue No. 1 under the more specific definition of misrepresentation.

The Bureau applied for a review by the Commission of the Review Board's Decision (FCC 75R-313). On July 1, 1980, the Commission adopted Memorandum Report and Order (FCC 80-391), denying the request by the Bureau for further review of the Overmyer case.[376] The Commission noted that WDHO-TV, while still operational, was in bankruptcy, and 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 the license was transferred to a new owner. Also, the option held by U.S. Communications to purchase Overmyer's interest had passed unexercised. Additionally, the U.S. Communications' stations where Overmyer held an interest had all been sold at a loss or never constructed, which resulted in minimal compensation.[377][378][379] 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.[380]

The Commission also indicated 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 hearing Order had become moot. After ten years in deferred status, the FCC renewed WDHO-TV's license on October 6, 1980.[381]

On July 12, 1966, Overmyer announced plans to create a fourth television network to compete against the Big Three television networks. He named it the Overmyer Network (ON) and hired former ABC president Oliver Treyz.[382] Overmyer also received exclusive rights to the Continental Football League. He also 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, with 24 of the largest 25 included.[383] However, Overmyer and Treyz did not have enough finances to launch the network in the fall of 1967 as they had hoped. So in early 1967, 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 more money to keep the network going until advertising dollars began to come in.

The Mutual board of directors turned down the merger proposal. But three Mutual stockholders; Texas oil operator Jack McGlothlin; grain dealer, an oil investor and land developer Willard Garvey; and James Nichols, a Texas advertising and public-relations man; thought enough of the idea to form a separate group with eleven wealthy western businessmen to buy the Overmyer Network and rename it the United Network.[384]

The United Network and The Las Vegas Show hosted by Bill Dana premiered on May 1, 1967. Due to insufficient advertising revenue and costly AT&T distribution charges, the United Network folded one month after it started on June 1, 1967.[385] The last broadcast feed from the network of The Las Vegas Show was May 31.

A lawsuit was filed by LewRon Television, the television production services company, against D. H. Overmyer Leasing Company regarding payment on services provided to telecast The Las Vegas Show.[386][387]

Due to 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.[388][389][390] 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 in 1972, for the assumption of a $3 million debt, to station group owner Metromedia Incorporated.[391][392][393][394][395][396][397] WPGH-TV was the only station of the U.S. Communications Corporation's group to enter receivership or bankruptcy.[398][399][400][401][402][403][404][405] 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[406]). The Toledo station was then the only operational TV station owned by Overmyer. The D. H. Overmyer Telecasting Company (Telecasting), founded in 1966, was the holding company for WDHO-TV.[407][408] Overmyer pledged the stock of Telecasting to the First National Bank of Boston (FNBB) as security for a $6 million loan in 1971.[409][410]

In 1973, Overmyer's warehouses began shutting down production and entered Chapter 11 in New York.[411] Alleged improper conduct by Federal Bankruptcy Judge Roy Babitt and the court officers he appointed to the Overmyer bankruptcy proceedings were investigated in 1978.[412][413][414][415][416][417] Overmyer's attorneys requested Babitt to remove himself from the case, which he refused to do.[418][419][420][421][422][423][424] A grand jury was eventually called to investigate these allegations, and in May 1978, Federal Judge Lloyd F. MacMahon ordered the removal of Babitt from the case.[425][426][427] On April 7, 1978, the order declaring the Overmyer Co. bankrupt 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 occurring during the Overmyer Co. bankruptcy proceedings.[428] A five-member Bankruptcy Committee, made up of judges from the United States District Court for the Southern District of New York, criticized Babitt for using "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."[429] The U.S. Bankruptcy Court of the Southern District of New York subsequently ordered the sale of the assets of the D. H. Overmyer Co. Inc.[430]

In 1976, after defaulting on the FNBB loan, Telecasting filed a petition under Chapter 11 bankruptcy in New York.[431][432][433] This proceeding was dismissed in 1980 and appealed by Overmyer. The court denied the appeal, and on the same day, Telecasting refiled under Chapter 11 in Cleveland. 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-ordered transfer 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—a debtor in possession—to FNBB.[434] FNBB eventually sold WDHO-TV through bankruptcy to a local group, Toledo Television Investors, Ltd., for $19.6 million in 1986.[435][436] 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 would lead to the indictment of Overmyer and attorney Edmund M. Connery.[437] Hadar purchased broadcasting equipment that it leased 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 in six counts, was granted a separate trial.[438] Overmyer was convicted by a federal jury in Akron, Ohio of one count of filing a false bankruptcy claim. Connery was convicted of one count of aiding and abetting the filing of a false bankruptcy claim. The trial judge overturned the convictions, finding there was insufficient 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.[439][440] In 1989, Overmyer was sentenced to three years in federal prison (with six months in custody), three years 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.[441] Overmyer appealed to the Supreme Court and was denied a hearing on October 29, 1990.[442][443] Connery was sentenced to two years on probation and a $5000 fine.[444] Connery was also disbarred from practicing law in New York State.[445] On May 15, 1991, Overmyer was released from the Federal Correctional Institute (FCI) Englewood in Littleton, Colorado.[446]

Overmyer married his wife Shirley in 1943. They had four children; John, Edward, Barbara, Elizabeth. His daughter Olga was an adopted child from his second marriage. Overmyer's wife Shirley preceded him death in 1994 and then his daughter Barbara preceded him in death in February 2005.

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.[447]