Courtroom Drama Ahead for KOCE?

When an Orange County college district wanted to get out of the public-television business, it sold its station last year and hoped to use the proceeds to improve education.

But a state appeals court has blasted the Coast Community College District board for the way it sold KOCE-TV. The court overturned the sale and left Channel 50’s future in doubt -- and officials wondering how to unravel the deal. The court ruled that the district must keep the PBS station, or start the sale over again, giving others another chance to buy it.

The decision -- and a likely appeal -- has plunged the community college board, the station’s operator and a rival group of Christian broadcasters into uncertainty on how to proceed.

“Our attorneys are sitting there scratching their heads,” said George Brown, one of five trustees for the district that oversees Orange Coast College in Costa Mesa, Coastline Community College in Fountain Valley and Golden West College in Huntington Beach.

Dallas-based Daystar Television Network, which lost out in the deal, wants more immediate action. On Friday, it asked the appeals court to award it ownership of the station now.

KOCE viewers are unlikely to see any changes in the next few months, but bigger questions remain about whether the college will return to the TV business and whether Daystar will succeed in acquiring the station.

The sale of KOCE to the nonprofit KOCE-TV Foundation, made up of business and community leaders, was completed last year. But on June 24, a state appeals court in Santa Ana canceled it.

District trustees, the three-judge panel ruled, showed “the rankest form of favoritism” for spurning the bid from Daystar, the world’s second-largest religious network. Milford Dahl, the attorney for the district, said he would recommend that trustees appeal to the state Supreme Court, but spokeswoman Erin Curtis said the district would probably ask for a rehearing by the appeals court. The trustees will meet July 20 to decide.

The district sold the station so it could put the proceeds toward education and wouldn’t have to continue subsidizing KOCE by about $1.8 million annually.

Daystar offered $25.1 million in cash. The trustees did not consider a later Daystar offer of $40 million because it came a day after the sale deadline.

Foundation officials made an offer that they said was worth $32 million. It included $8 million down, with the rest to be paid over 30 years at no interest. No payments were to be made for the first five years. Experts said the final deal was worth just $12.5 million to $19.5 million in current dollars.

The potential for lawsuits -- perhaps from other suitors, the foundation, displaced employees and donors, among others -- seems almost endless.

“What a mess,” said Matthew Spitzer, dean of USC’s Gould School of Law.

Richard Sherman, Daystar’s attorney, said he planned to sue district trustees, claiming they ignored the law. He said he also would try to compel the Federal Communications Commission to return the broadcast license to the district, putting the foundation out of the TV business.

Public Broadcasting System stations seldom come up for sale, but when they do, religious broadcasters are often buyers. They can operate under the station’s noncommercial license while still soliciting donations. KOCE is especially attractive because seldom does a full-power station become available in one of the country’s largest markets.

When the district put KOCE up for sale, several religious broadcasters made early bids before dropping out or being disqualified, including Trinity Broadcasting Network of Costa Mesa, the world’s largest religious broadcaster.

Elliot Evers of Media Venture Partners in San Francisco, who brokered the KOCE deal, said he told district officials from the beginning that religious broadcasters would make the best offer. “We have no doubt the televangelist community is always going to be the highest bidder for an asset like this,” he said.

Evers said he expected that those broadcasters would bid for the station if it is put up for sale again. “Daystar has a strong desire, a need even, to be in the L.A. market,” he said.

John Casoria, a TBN attorney, said company officials were discussing whether to bid for KOCE.

The sale has cost the district $1.8 million.

This includes $832,000 in legal fees and $285,287 in employee costs related to the sale. Under the old regime, most KOCE workers were district employees.

After the sale, 14 people transferred to district jobs, 12 retired, 14 kept their broadcasting jobs by transferring to the foundation and five quit. In addition, Evers received a $690,000 commission.

If the district keeps the station, it would presumably have to return the foundation’s $8-million down payment, much of which already has been spent.

The district used $1 million to fund 312 more classes at Golden West, Orange Coast and Coastline colleges.

About $2.3 million purchased equipment for the station’s required conversion to digital broadcasting, and $432,658 covered KOCE’s deficit from the previous fiscal year.

About $2.15 million went toward the college district’s health insurance fund for all retirees.

Brown said that if the station returns to district ownership, Evers should return his fee, setting up the potential for another lawsuit. “I think if you don’t sell it, no commission,” Brown said.

Evers disagreed. “We would resist any attempt to get us to pay back our commission,” he said. “We did what they hired us to do.”

If the KOCE-TV Foundation is forced to give back the station, it would need its down payment back in order to repay a $10-million bank loan it struggled to land.

Mel Rogers, president of the KOCE Foundation and the TV station, sent an e-mail to supporters recently, asking them to back the station by contacting community leaders, local news media and the college district trustees -- although it was unclear what the effect of such political rallying would have on the legal situation.

“If KOCE’s continued service to our communities and schools is important to you, please help us prevail in this matter,” he wrote.

In an interview, Rogers held out the possibility that the district could retain ownership of the station and the foundation would run it.

Rogers said the National Public Radio affiliate KPPC-FM (89.3), owned by Pasadena City College but run by Minnesota Public Radio, was an example.

“We see that as Plan B,” Rogers said. “That’s something possible if all else fails. That’s why I’m not losing too much sleep.”

Daystar’s Sherman said such an arrangement would invite a lawsuit.

Rogers said KOCE has completed its most successful fundraising year, with more than $4.5 million in on-air and direct-mail pledges. He said that since the appellate court’s decision, some prospective deep-pocket donors were holding back, at least for now.

Rogers said the station had postponed a large capital fund-raising campaign and a campaign to roll out a new name and “brand” in September, similar to another PBS station that calls itself “Mind TV.”

“If we rolled out a new brand, people would think maybe the other entity had gotten the station,” he said.

Rogers said the foundation still planned to start a for-profit cable news channel focusing on Orange County, at a cost of up to $5 million.

A similar venture, the Orange County NewsChannel, closed in 2001 after 11 years. Rogers said the KOCE plan called for a staff about one-third the size of that station’s.

“We think that the station will go forward under the auspices of the foundation one way or the other,” he said. “That’s our belief and we’re moving forward under that assumption.”