In re Airadigm Communications, Inc.

• Citation: 547 F.3d 763
• Decision Date: 29 October 2008
• Docket Number: No. 07-3864.,No. 07-3863.,07-3863.,07-3864.
• Parties: In re AIRADIGM COMMUNICATIONS, INC., Debtor. Airadigm Communications, Inc. and Telephone and Data Systems, Inc., Appellants, v. Federal Communications Commission, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

547 F.3d 763

In re AIRADIGM COMMUNICATIONS, INC., Debtor.

Airadigm Communications, Inc. and Telephone and Data Systems, Inc., Appellants, v. Federal Communications Commission, Appellee.

No. 07-3863.

No. 07-3864.

United States Court of Appeals, Seventh Circuit.

Argued September 16, 2008.

Decided October 29, 2008.

Jeffrey Clair (argued), Department of Justice, Washington, DC, for Appellee.

Kathryn A. Pamenter (argued), Ronald Barliant, Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Chicago, IL, Catherine J. Furay (argued), Murphy Desmond, Madison, WI, for Appellants.

Before CUDAHY, FLAUM, and ROVNER, Circuit Judges.

FLAUM, Circuit Judge.

Debtor-appellant Airadigm Communications, Inc. purchased fifteen personal communications services ("PCS") licenses in 1996 through FCC auctions. It planned to pay for these licenses in installments. Unable to meet its payment obligations, Airadigm filed for Chapter 11 bankruptcy in 1999. Its plan of reorganization, confirmed on November 15, 2000, was dependent upon financing by Telephone and Data Systems ("TDS"). The reorganization plan provided the FCC an allowed claim of $64.2 million for the fifteen licenses. The FCC took the position that the licenses were forfeited as a result of Airadigm's failure to pay in full, and Airadigm's Chapter 11 case proceeded as if the licenses were no longer an asset of the company. In 2003, however, the Supreme Court decided FCC v. NextWave Personal Communications, Inc., 537 U.S. 293, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003). That case held that the FCC could not cancel a license because the licensee had filed for bankruptcy prior to paying for the license. The FCC then conceded that it had incorrectly terminated Airadigm's licenses, and it reinstated them.

Airadigm filed a second Chapter 11 petition in May 2006. TDS again would provide financing. On September 14, 2006, the FCC filed a claim for each of the licenses, seeking the principal amounts owed on the licenses (about $64.2 million) and accrued interest on the claims through the 2006 petition date (about $42.4 million). Airadigm and TDS objected to the FCC's claims for interest, arguing that under the 2000 plan all interest stopped accruing on the 1999 petition date.

The bankruptcy court denied the FCC interest for the period from the commencement of the bankruptcy case to the November 15, 2000 confirmation date, but it found that the 2000 plan implicitly entitled the FCC to post-confirmation interest. The district court affirmed the bankruptcy court in part to allow post-confirmation interest and reversed the bankruptcy court in part to also allow a portion of the additional interest that the FCC sought. Airadigm and TDS appeal. For the reasons explained below, we affirm the district court's ruling awarding post-confirmation interest for the period between confirmation of Airadigm's 2000 plan of reorganization and commencement of new bankruptcy proceedings in 2006; and we affirm the district court's award of post-petition interest for the interim period between commencement of the 1999 bankruptcy proceeding and confirmation of the 2000 plan.

I. Background

The FCC awards spectrum licenses— which can be used for a variety of mobile and fixed radio services—for specific time periods. The Communications Act of 1934, as amended, authorizes the FCC to allocate spectrum licenses through a system of competitive bidding, based on the premise that the highest qualified bidder will be most likely to build out the licenses and put them to public use. 47 U.S.C. § 309(j)(1). This Act further requires the FCC to design auctions that "ensure that small businesses, rural telephone companies, and businesses owned by members of minority groups and women are given the opportunity to participate in the provision of spectrum-based services." 47 U.S.C. § 309(j)(3)(B), (j)(4)(D). The FCC earmarked certain blocks of spectrum—blocks C and F—for such entities who, unable to afford a lump sum payment, could pay for their licenses in installments. 47 C.F.R. § 24.709 (2007). To ensure payment, the FCC made payment-in-full a condition precedent to obtaining a license, 47 C.F.R. § 1.2110(g)(4)(iv), and it executed a promissory note and security agreement to secure its interest in each license. Id. § 1.2110(g)(3). If the successful bidder fell into default, "its license [would] automatically cancel, and it [would] be subject to debt collection procedures." 47 C.F.R. § 1.2110(g)(4)(iv).

In a 1996 FCC auction, Airadigm was the highest bidder for fifteen licenses designated for small businesses. Thirteen of these licenses were "C-block" and two were "F-block" segments. The licenses authorized Airadigm to use portions of the electromagnetic spectrum to provide wireless telecommunications services in parts of Wisconsin, Iowa, and Michigan. Airadigm agreed to pay for these licenses in quarterly installments, plus interest, over a ten-year period. Airadigm paid ten percent of the purchase price, signed fifteen promissory notes recognizing its debt to the FCC, and executed fifteen security agreements. The licenses themselves stated that they were conditioned on the "full and timely payment of all monies due pursuant to [FCC regulations] and the terms of the Commission's installment plan." The licenses stated that failure to comply with this condition would result in automatic cancellation of the licenses. The FCC sought to perfect its interest in the licenses by, among other things, filing UCC financing statements with the office of the Wisconsin Secretary of State.

Airadigm soon met financial problems. It defaulted on its obligations to the FCC and filed a voluntary petition for Chapter 11 relief on July 28, 1999. The FCC allowed Airadigm to continue using its portion of the spectrum but cancelled Airadigm's licenses and filed a proof of claim in bankruptcy court for about $64.2 million, which represented the aggregate unpaid principal balance due under the fifteen notes. The FCC stated that the licenses had automatically cancelled by operation of law and that, as its collateral had been extinguished, its claims against Airadigm were unsecured. Hedging, the FCC recognized in its proof of claim that if it did not have the authority to cancel the licenses, its debt was instead secured by the licenses themselves. Airadigm filed a petition with the FCC seeking either reinstatement of the licenses or a waiver of their cancellation.

In October 2000, Airadigm and several other interested parties filed a plan of reorganization. The FCC objected to confirmation of the plan, but it limited its objection to the plan's treatment of the FCC as the holder of an unsecured claim. On November 1, 2000, a confirmation hearing was held on the debtor's plan. On November 15, 2000, the bankruptcy court entered an order confirming the 2000 plan. The FCC did not appeal.

The reorganization proceeded under the assumption that the FCC had properly cancelled the licenses. The plan provided that the FCC had an allowed claim of $64.2 million and laid out several contingencies should the FCC reinstate the licenses. TDS would provide the financing under these contingency scenarios. Should the FCC reinstate the licenses by June 2001, TDS would pay the FCC's claim in full. If the FCC did not reinstate the licenses by June 2001 but did so by June 2002, TDS had the option of paying off the claim but was not obligated to do so. But if the FCC never reinstated the licenses or "fail[ed] to act . . . in a timely manner," the plan provided that TDS would obtain all of Airadigm's assets except the licenses. The plan was otherwise silent as to the FCC's exact interests in the licenses and what would happen if the FCC reinstated them after June 2002. And the plan did not expressly preserve the FCC's security interest in the licenses, instead stating that the plan "shall not enjoin or in any way purport to limit, restrict, affect or interfere with action initiated by the FCC in the full exercise of its regulatory rights, powers and duties with respect to the Licenses."

The FCC did not act on the reinstatement petition by June 2002. On January 27, 2003, the Supreme Court issued its decision in F.C.C. v. NextWave Personal Communications, Inc., 537 U.S. 293, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003). In a case involving a factual scenario very similar to this one, the Court held that the FCC could not cancel a debtor's PCS licenses just because it had filed for bankruptcy. The Court held that automatic cancellation violated § 525 of the Bankruptcy Code, which provides that a government unit may not "deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant" to a debtor in bankruptcy "solely because such debtor . . . has not paid a debt that is dischargeable in the case under this [Bankruptcy] title or that was discharged under the Bankruptcy Act." 11 U.S.C. § 525(a). The Court reasoned that even if timely installment payments further the FCC's regulatory purposes, the obligation to make such payments is still a debt within the meaning of § 525, and that the failure to make payments on such debt therefore cannot be the sole basis for canceling the FCC licenses. NextWave, 537 U.S. at 302-05, 123 S.Ct. 832. The FCC conceded a few months later that it had been wrong to terminate Airadigm's licenses, and it reinstated them as though they had never been cancelled.

After the FCC reinstated Airadigm's licenses, Oneida Enterprise Development Authority (OEDA), another Airadigm creditor, filed an objection to the FCC's claim. OEDA argued that the FCC's delay in reinstating the licenses prejudiced them and the FCC's claim should be disallowed for inequitable conduct, deemed waived, or subordinated to the claims of other creditors. The FCC responded that its conduct was appropriate and that there was no legal basis to disallow or subordinate its claim. Agreeing with the FCC, the bankruptcy court signed an order granting...