Minority broadcaster alleges mistreatment following FCC-friendly spin-off

Marshall Broadcasting Group (MBG), which is owned by Pluria Marshall, has filed suit against Nexstar Broadcasting in the New York State Supreme Court.

Allegations in the nine-count suit include Breach of Contract and fraudulent misrepresentation.

"The allegations made by MBG in its lawsuit against the company are spurious and without merit," said Nexstar in a statement. "The company intends to vigorously defend itself regarding this matter in a court of law."

Related: Nexstar, Tribune Fire Back at Critics in FCC Filing

The suit comes as Nexstar is trying to get approval of its deal to buy Tribune stations for $4.1. Billion. A pending lawsuit could complicate that sale.

Marshall Broadcasting is alleging that Nexstar sold it three TV stations only to gain FCC approval of other station sales--the FCC encourages sales to minority owners given the relative dearth of such owners--then attempted to "hobble" those stations so it could ultimately re-acquire them at a bargain basement price.

Nexstar just this week announced the spin-off of two stations to a newly formed minority broadcast company as part of the spin-offs in the Tribune deal. 

The Marshall stations at issue in the suit are KPEJ-TV Odessa, Tex.; KMSS-TV Shreveport, La.; and KLJB-TV Davenport, Iowa, which Nexstar spun off to Marshall in 2013-2014 as part of deals to buy stations from Communications Corporation of America (CCA), White Knight Broadcasting, and Grant Broadcasting and in order to comply with local ownership rules.

At the time, Nexstar Chairman Perry Sook called the Grant deal "a model to increase media ownership diversity."

In happier times, Marshall had called the spin-off of KLJB "a great day for Americans, minorities, MBG and Nexstar."

Marshall said a key part of the station deals was that Nexstar "would help in obtaining the financing to purchase and operate the stations and would guarantee that financing for five years," as well as "provide the technical know-how and financial resources to produce new, minority-oriented programming."

"Despite the assurances given that MBG would operate its stations independently," the suit alleges, "Nexstar has consistently interfered with MBG's operations [it has joint sales and services agreements with the stations]. "Nexstar's consistent interference, as well as various breaches of contract and tortuous acts, have hamstrung MBG's operations."

Mashall said that Nexstar charged fees for those sharing arrangements meant to recapture money it lost when the FCC limited its take from the TV station's ad sales to 15% under the new limits to prevent owners from using the agreements to have de facto control over stations to skirt local ownership rules.

Marshall also claimed that Nexstar, after buying the stations from Grant and White Knight and CCA, kept the accounts receivables and other revenue streams when they sold them to Marshall, forcing Marshall to borrow to operate the stations.

It also said Nexstar "proposed that MBG sell back to it one of the physical locations it had acquired in the deal."

Mashall also claimed, among many other things, that Nexstar misrepresented to advertisers that it still owned the stations, allowing it to poach them. It also said the promised minority programming investment never materialized and withheld retransmission consent fees.

The bottom line: "Nexstar's intent is ultimately to re-take those stations it sold to MBG, with the expectation that in the current political climate Nexstar will face significantly less regulatory push-back than it did in late 2014."

Marshall said it wants Nexstar to be found to have violated the law(s) and wants injunctive relief, monetary damages, punitive damages sufficient to punish and deter, attorneys fees and costs, and anything else the court decides is justified.