Bidding Process at Issue in KOCE Sale Challenge

The sale of Orange County’s public television station may hinge on a judge’s interpretation of simple phrases and words such as “cash.” Does it mean greenbacks, or would a promissory note count?

It could make a difference, as a Christian broadcaster challenges the Coast Community College’s sale of KOCE-TV to a foundation controlled by local business executives who have promised to keep the Public Broadcasting Service affiliation.

Among the points of contention is the state education code’s definition of cash. Daystar Television Network offered an all-cash deal, but lost the bidding to the foundation, whose offer includes a promissory note. The religious group is crying foul.

Semantics aside, legal experts said that changes made after KOCE-TV Foundation’s bid was accepted may be so extensive that a judge could overturn the deal.

“If this were a publicly held corporation, it would be ripe for a lawsuit in which those who control the company are playing favorites with the bidders,” said Eric Talley, a professor at USC Law School.

After losing its bid for KOCE, Daystar, the nation’s second-largest religious broadcaster, threatened to sue unless it was allowed to buy the station.

The Dallas-based broadcaster offered $25.1 million cash for the station. A sweetened offer of $40 million was rejected because it was submitted a day after the deadline.

The foundation offered what was characterized as a $32-million bid when it was announced as the winner in October, with $8 million down and the rest to be paid, with interest, over time.

But when final terms of the deal were announced two months later, they had substantially changed. The district had lowered the price by $4 million, costs that it said it would have had to pay had the station been sold to a non-PBS bidder. The deal still includes the $8-million down payment, but the rest is to be paid over 30 years -- with no interest. And no payments will be made for five years.

Daystar’s attorney argued in his letter that his client’s offer was far more valuable in today’s dollars than the foundation’s. Experts interviewed by The Times agreed, saying that what was characterized as a $32-million deal was worth $12.5 million to $19.5 million.

District trustees have argued that they sold the station to the “highest responsible bidder,” as the law requires.

They have said that had they sold the station to a non-PBS bidder, the Corporation for Public Broadcasting and PBS would have sued them to recover grants and equipment they provided and some of KOCE’s most generous donors would have gone to court to get their money back.

Other PBS supporters have threatened to tie up the broadcast license transfer before the Federal Communications Commission for years, costing the district more money.

The cash-strapped district, which includes Golden West, Orange Coast and Coastline colleges, considered the station a financial liability and decided to sell it for classroom money.

The district came under community pressure to sell KOCE to the foundation, with many of Orange County’s rich and influential -- including politicians, prominent CEOs and leaders in education -- flocking to its side.

Laws detailing the sale of government property are written to ensure competition and to fight corruption, said Dave Barnier, an attorney who represents Palomar College in San Diego County.

USC’s Talley said that courts have given cities and other government entities leeway in determining what “highest responsible bidder” means. He said the district probably would argue that one of the elements that goes toward defining the term was that the new owner continue to serve its historic PBS constituency.

“The big 600-pound gorilla in the background is to what extent would a substantial change in programming cause other third-party lawsuits,” Talley said.

Another problem is the murkiness of the state Education Code. The law says, “The governing board of any community college district may sell for cash any personal property belonging to the district if the property is not required for school purposes....”

The problem, lawyers agree, is whether the sentence means that a sale must be for cash only and what, in fact, “cash” means.

Richard Lloyd Sherman, Daystar’s attorney, says cash means just that.

Other attorneys, including the district’s lawyer, said they could find no legal precedents that explained what cash means.

Barnier said if he were representing the district, he would argue that cash means money, whether it is paid in a lump sum or in payments.

“I think the religious group has a pretty good argument that cash is money on the barrel, not a note,” he said. But either party, he said, will be able to justify its position.

Legal and business experts agreed the changes that occurred between the foundation’s bid and the final terms made it a new offer, which appeared to violate the bidding process.

They said changes always are made while final details are hammered out, but not to the extent of giving the buyer a huge discount.

“It sounds really odd because technically it is a changed bid,” said Michael Klausner, the Nancy and Charles Munger professor for business and law at Stanford Law School. “They only way they could justify it is to say the other one is not responsible.”