Capital Cities/ABC, Inc. v. Brady

Citations: 740 F. Supp. 1007; 1990 U.S. Dist. LEXIS 8049; 1990 WL 92711Docket: 89 Civ. 8006 (JES)

Court: District Court, S.D. New York; June 29, 1990; Federal District Court

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The case involves Capital Cities/ABC, Inc. as the plaintiff against Nicholas Brady, Secretary of the Treasury, and R. Richard Newcomb, Director of the Office of Foreign Assets Control (OFAC), as defendants. The central issue is whether the Treasury Department's refusal to license an agreement for the exclusive live broadcasting rights of the 1991 Pan American Games aligns with the Trading With The Enemy Act (TWEA) and the First Amendment. 

The TWEA, specifically Section 5(b), allows the President to impose embargoes during national emergencies on transactions with designated hostile countries, established following President Kennedy's 1962 embargo on Cuba. The Treasury Department administers TWEA, delegating authority to OFAC, which has established regulations prohibiting transactions with the Cuban government or nationals unless they fall under specific license exemptions. General licensing provisions exist for certain transactions, such as those related to mail or news transmission, but the regulations explicitly disallow specific licenses for payments to Cuba for television rights or related fees.

A 1988 amendment to the TWEA, known as the Berman Amendment, limits the President's authority by stating that it does not extend to the regulation of informational materials, which includes various media formats unless otherwise prohibited. This case examines the intersection of these regulations with First Amendment rights concerning broadcasting.

On February 2, 1989, regulations were amended to align with the Berman Amendment, authorizing transactions related to "informational materials" under a general license, per 31 C.F.R. 515.206(a) and 515.545(b). However, "informational materials" do not include intangible items like telecommunications, and transactions involving materials not fully created at the time of the transaction are prohibited, along with remittances for works not yet existing. Capital Cities/ABC, Inc. (ABC), which operates the ABC Television Network, sought to secure broadcasting rights for the 1991 Pan American Games, to be held in Havana, Cuba. ABC agreed to pay $8.7 million to the Pan American Sports Organization (PASO), with $6.5 million designated for Cimesports, S.A., a Cuban entity. After notifying the Office of Foreign Assets Control (OFAC) of this agreement, ABC was told a specific license was necessary and subsequently applied for one to cover all transactions with Cuba related to the event. ABC contested the need for a specific license, arguing it was contrary to the Berman Amendment's intent. In September 1989, ABC withdrew its application, stating it was negotiating different broadcast rights. However, by November 16, 1989, ABC reiterated its intention to proceed with the original plan and claimed the transaction did not require a license, citing general licenses for travel and importation related to news gathering. The OFAC responded that a license would be granted if royalty payments were made into a blocked account and travel expenses minimized, indicating that sports broadcasts were classified as entertainment rather than news. ABC could use the news gathering general license if no royalty payment was made and specific guidelines were followed.

ABC can import videotapes of the Games without funding or contracting services related to their production. The OFAC denied ABC's renewed application for a specific license due to the significant financial payment to Cuba contradicting U.S. foreign policy. ABC found the OFAC's conditions unacceptable due to contractual obligations to remit funds to Cuba, leading to their lawsuit. They seek a declaratory judgment asserting that the Berman Amendment and/or the Constitution permits their proposed transaction and that the Regulations are invalid regarding the importation of television signals and related materials. ABC claims the Berman Amendment, the Administrative Procedures Act, and/or the Constitution prevent the Government from taking action against them regarding the 1991 Games broadcast. 

Key issues in the case include the alignment of the Regulations with the Berman Amendment and whether the court should defer to the OFAC's interpretation based on Chevron doctrine. ABC argues that deference is unnecessary and would violate the First Amendment. The term "other informational materials" is ambiguous, allowing for multiple interpretations. While "materials" typically refers to tangible items, it can also denote intangible concepts. The legislative history does not clarify the meaning of "other informational materials" or differentiate between tangible and intangible information, reflecting a general intent to promote the exchange of ideas without specified limits.

The Report of the House Committee on Foreign Affairs indicates that the Berman Amendment codifies the existing practice of exempting informational materials and publications from trade embargoes with Nicaragua and Libya. However, these embargoes do not explicitly address exclusive broadcasting rights, and there is no agency precedent allowing royalty payments related to these rights. The Court concludes that, due to the ambiguity of the Berman Amendment and its legislative history, it must defer to the Office of Foreign Assets Control (OFAC) interpretation unless it conflicts with First Amendment rights or is deemed arbitrary and irrational under substantive due process. The Court rejects ABC's argument that such deference would be unconstitutional, emphasizing that the regulation of speech in foreign affairs is not subject to the same scrutiny as in domestic contexts, as established in Teague v. Regional Commissioner of Customs. The ruling in Teague upheld the Cuban embargo, which banned all informational materials, highlighting a different constitutional standard for foreign affairs. The Supreme Court has recognized that First Amendment applications can vary based on regulatory nature and context. ABC's cited cases do not pertain to foreign affairs and thus do not support its argument. Additionally, the Court notes that an expansive interpretation of the Berman Amendment could raise significant constitutional concerns regarding separation of powers and executive authority in foreign affairs. The Court must weigh First Amendment issues against the need for executive flexibility in conducting foreign policy.

The Court rejects ABC's assertion that the Regulations unfairly discriminate between print and broadcast media. The OFAC's prohibition on payments for exclusive television rights to the Games does not disadvantage ABC compared to newspapers or magazines, as no media has been allowed to pay the Cuban Government for exclusive coverage. Both print and broadcast media can obtain recordings of the Games and use them after paying appropriate royalties. Non-exclusive coverage is permitted across all media without payments to Cuba. ABC's reliance on cases like *Smith v. Daily Mail Publishing Co.* and *The Florida Star v. B.J.F.* is deemed misplaced, as those involved content-based restrictions not present in the current Regulations, which are considered content-neutral. The Court also distinguishes this case from *Lakewood v. Plain Dealer Publ. Co.*, where discrimination was evident, stating no such discrimination has been shown in this instance. ABC's argument that the Regulations are irrational because they allow payments for existing works but not future ones is dismissed, emphasizing that foreign relations matters are primarily within the political branches' domain and largely shielded from judicial review. The Court concludes that the OFAC's differentiation is rational, viewing potential payments to a hostile government as more concerning than payments for existing informational materials. Lastly, ABC claims the transaction falls under a general licensing provision for news gathering, arguing OFAC's application of its regulations is incorrect.

An agency's interpretation of its regulations is given deference unless it contradicts the regulations' plain language. In this case, the Office of Foreign Assets Control (OFAC) determined that a broadcasting rights agreement is not covered by the news gathering license, aligning with the regulation that only authorizes transactions related to travel for news gathering in Cuba. This interpretation is consistent with other OFAC regulations that exclude telecommunication transmissions from "informational materials," prohibit payments for non-existent works, and ban agreements for TV rights. The Court also dismissed claims that the regulations were vague and concluded they do not conflict with the Berman Amendment, which is constitutional as interpreted. The plaintiff's motion for summary judgment was denied, and the defendant's motion was granted, resulting in the dismissal of the complaint. The Clerk is instructed to enter judgment for the defendant and close the case. Key legal provisions referenced include the Trading with the Enemy Act (TWEA) and regulations regarding blocked assets and royalty payments. The Court assumes that sports coverage is protected under the First Amendment for the purpose of this discussion. Additionally, the plaintiff's argument regarding the regulation of intangibles under the Berman Amendment was deemed premature.

ABC's claim that other statutes using "informational materials" explicitly include telecommunications is countered by the assertion that three referenced statutes do not clarify this issue more than the Berman Amendment itself. Specifically, the plain language of 47 U.S.C. 397(14) indicates that when Congress wants to include telecommunications under "informational materials," it does so clearly. Senator Mathias, who sponsored the Berman Amendment, articulated a vision for the free exchange of ideas across borders but did not define "informational materials." Additionally, a House Committee Report referenced the American Bar Association's support for First Amendment protection for imported "informational materials," but did not provide a clear definition or endorsement of the ABA's stance. Furthermore, post-enactment statements from Congressman Berman regarding the scope of the Berman Amendment carry minimal weight, particularly since they arose after the current dispute. The document also notes that existing embargoes have exemptions similar to those in the Cuban Regulations, and while ABC claims that royalty payments were allowed under these embargoes, no evidence has been presented to establish that such payments were made with OFAC's knowledge. ABC's assertion regarding specific licenses for broadcasting rights to Cuban sporting events lacks supporting evidence, suggesting that any licenses granted were conditional upon no rights payments being made to Cuba.

The applicability of substantive due process concepts to the Executive's foreign affairs powers is ambiguous, with no conclusive legal authority cited. For analytical purposes, the Court presumes that there are rationality limits in this domain, referencing Richardson v. Simon, which acknowledges the Executive's extensive discretion. The regulations in question aim to achieve three main objectives: (1) restrict funds Cuba can use for activities against U.S. interests, (2) employ blocked funds as leverage in negotiations with Cuba, and (3) maintain control over these funds for potential resolution of American claims. ABC and Amici contend that the case differs from Teague because it lacked discrimination; however, the Second Circuit upheld the regulations despite exemptions for educational institutions, which were deemed insufficient to challenge the overall regulation's validity. Additionally, ABC references certain provisions of the Regulations that were retracted by OFAC in compliance with the Berman Amendment. These provisions, regarding the purchase of news materials and the importation of publications, do not substantiate ABC's arguments as they align closely with the current regulations.