IN RE DBSD NORTH AMERICA, INC.

• Decision Date: 30 March 2010
• Docket Number: 09 Civ. 9144(VM).,No. 09-13061 (REG),09-13061 (REG)
• Citation: 427 B.R. 245
• Parties: In re DBSD NORTH AMERICA, INC., et al., Debtors. Sprint Nextel Corp., Appellant, v. DBSD North America, Inc., et al., Appellees.
• Court: U.S. District Court — Southern District of New York

427 B.R. 245

In re DBSD NORTH AMERICA, INC., et al., Debtors Sprint Nextel Corp., Appellant, v. DBSD North America, Inc., et al., Appellees.

Nos. 09-13061 (REG), 09 Civ. 9144(VM).

United States District Court, S.D. New York.

March 30, 2010.

COPYRIGHT MATERIAL OMITTED

Jeffrey Bossert Clark, Kirkland & Ellis LLP (Washington), Washington, DC, Marc Jason Carmel, Kirkland & Ellis LLP (IL), Chicago, IL, for Debtors.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Appellant Sprint Nextel Corporation ("Sprint") appealed, pursuant to 28 U.S.C. § 158(a) and Rules 8001(a) and 8002(a) of the Federal Rules of Bankruptcy Procedure, from an order dated September 30, 2009 (the "Bankruptcy Order") of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") which denied Sprint's claims for amounts it asserts it was owed by the appellee debtors (the "Debtors").¹ For the reasons set forth below, the Bankruptcy Order is AFFIRMED.

I. BACKGROUND²

The Debtors comprise a developmental-stage business formed for the purpose of providing mobile satellite services ("MSS"). In very general terms, MSS provide information from satellites to mobile and portable devices (such as cell phones). The lead Debtor is DBSD, N.A., a holding company and the direct or indirect corporate parent of each of the other Debtors, including New Satellite Services. New Satellite Services is the entity among the Debtors that holds a license from the Federal Communications Commission (the "FCC") authorizing the use of some of the 2-gigahertz radio frequency spectrum band (the "2 GHz Band"). The other Debtors own assets or provide ancillary services involved with the delivery of the MSS provided by the Debtors.

In 1997, part of the 2 GHz Band was first designated for MSS use. At the time, however, the band was already occupied by unrelated Broadcast Auxiliary Service entities (consequently known as "BAS Incumbents"). Concerned about potential interference between BAS Incumbents and MSS operators on the same spectrum, the FCC required BAS Incumbents to relocate to another spectrum (the "BAS Relocation"). Recognizing the significant costs involved in the BAS Relocation, the FCC also directed that any new 2 GHz Band occupant, such as New Satellite Services, bear the costs required to relocate the BAS Incumbents.

Sprint, unlike New Satellite Services, is not an MSS operator, but a land-based commercial mobile radio service provider. In 2004, Sprint's radio service at least potentially interfered with the radio communications of public safety services (e.g., police, fire, and other first responders) and other private services. At that same time, MSS operators had still not consummated the BAS Relocation. To resolve the potential Sprint-interference issue and the still-outstanding BAS Relocation issue, Sprint proposed (1) relinquishing its right to use the potentially-interfering spectrum in exchange for new spectrum in the band previously reserved for MSS operators (the same 2 GHz Band from which the BAS Incumbents were to be relocated), and (2) to undertake certain responsibilities relating to the inchoate BAS Relocation. By order in 2004, the FCC authorized the implementation of this plan.

Sprint did not volunteer to incur the substantial costs of BAS Relocation out of pure altruism. The 2 GHz Band was significantly more valuable than Sprint's former band. The FCC valued the difference between Sprint's interest in the 2 GHz Band and its former band at $2.8 billion. Thus, Sprint had received a $2.8 billion windfall for moving spectrum bands.

To account for this windfall, the FCC required Sprint to make a true-up payment of roughly $2.8 billion to United States Treasury (the "$2.8 Billion True-Up"). However, the FCC allowed Sprint a credit against the $2.8 Billion True-Up for its band-clearing costs in both its former band and the 2 GHz Band. The FCC issued orders³ (the "FCC Orders") delineating the scope of both Sprint's band-clearing obligations and its right to seek reimbursement from other MSS entrants to the 2 GHz Band for their pro rata share of certain band-clearing costs (the "Reimbursement Obligation"). Pursuant to the FCC Orders, to the extent that Sprint collects money from an MSS entrant under the Reimbursement Obligation, Sprint is not entitled also to take a band-clearing credit for that amount against its $2.8 Billion True-Up.

In Sprint Nextel Corporation v. New ICO Satellite Services G.P. and Terrestar Networks, Inc., 08 CV 651 (E.D.Va.), Sprint and New Satellite Services are engaged in litigation relating to the Reimbursement Obligation (the "Reimbursement Litigation"). In its complaint in that action, Sprint asserted the right to payment from New Satellite Services for its share of the Reimbursement Obligation.⁴ Notably, Sprint did not name the other Debtors as defendants in the Reimbursement Litigation, and did not seek joint and several liability against the Debtors for the Reimbursement Obligation. Sprint claimed that the Debtors were jointly and severally liable under the FCC Orders after New Satellite Services and the Debtors filed for bankruptcy protection on May 15, 2009.

On June 25, 2009, Sprint filed a proof of claim against each of the Debtors in the amount of $211,429,000 (collectively, the "Sprint Claims"), asserting that the Debtors were each jointly and severally liable to Sprint for their alleged $1.9-billion-plus share of the Reimbursement Obligation. The $1.9 billion represented a nineteen-fold increase over the $100 million Sprint sought in its complaint from New Satellite Services in the Reimbursement Litigation.

On July 22, 2009, the Debtors filed an objection to the Sprint Claims to the extent that Sprint asserted them against any Debtor other than New Satellite Services. The Debtors' position was that no joint and several liability existed and that only the actual FCC-license-holding entity (here, New Satellite Services) was potentially⁵ liable for the Reimbursement Obligation. The Bankruptcy Court disallowed the Sprint Claims against the Debtors other than New Satellite Services, holding that the referral to the FCC under the doctrine of primary jurisdiction was not required,⁶ and that, on the merits of the joint-and-several-liability claim, "no basis exists under the facts as they have been presented to impose joint and several liability on the Debtors." (Bankruptcy Order at 18.)

Sprint now presents two main arguments on appeal. First, it asserts that the Bankruptcy Court erred by failing to refer the issue of the Debtors' joint and several liability for the Reimbursement Obligation to the FCC under the doctrine of primary jurisdiction. Second, Sprint argues that even if the Bankruptcy Court was not required to refer the issue to the FCC, it made two errors in its analysis on the merits in finding that no joint and several liability existed. After reviewing the relevant record and the parties' submissions, the Court affirms the Bankruptcy Order for the reasons set forth below.

II. DISCUSSION

A. PRIMARY JURISDICTION REFERRAL

In a District Court's review of a Bankruptcy Court order denying a motion for a primary jurisdiction referral and disallowing the underlying claims, the Bankruptcy Court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. See In re Yohannes, No. 06 Civ. 461, 2007 WL 2034301, at *2 (S.D.N.Y. July 17, 2007). Further, the Second Circuit has stated that a court's decision to not apply the doctrine of primary jurisdiction is subject to de novo review. See Ellis v. Tribune Television Co., 443 F.3d 71, 83 n. 14 (2d Cir.2006); see also National Commc'ns Ass'n, Inc. v. American Tel. & Tel. Co., 46 F.3d 220, 222 (2d Cir.1995) (stating that the decision is subject to a "standard of review that is essentially de novo."). The parties do not dispute that the reviewing court must independently examine the four considerations described below to determine whether referral is appropriate. Accordingly, the Court will examine the primary jurisdiction issue anew.

"No fixed formula exists for applying the doctrine of primary jurisdiction." Ellis, 443 F.3d at 82 (quoting United States v. West Pac. R.R. Co., 352 U.S. 59, 64, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956)). Instead, the Second Circuit generally focuses on four grounds in determining whether to apply primary jurisdiction, specifically whether the question at issue: (1) falls within the conventional experience of judges or involves technical or policy considerations within the agency's particular field of expertise; (2) is particularly within the agency's discretion; (3) raises a substantial risk of inconsistent rulings; and (4) has been the subject of a prior application to the agency. See id. at 82-83; National Commc'ns Ass'n, 46 F.3d at 220-23. In addition to reviewing these four considerations, "the court must also balance the advantages of applying the doctrine against the potential costs resulting from complications and delay in the administrative proceedings." National Commc'ns Ass'n, 46 F.3d at 223; Ellis, 443 F.3d at 83 (quotation marks omitted).

In reviewing the four grounds and related balancing consideration, the Court is mindful that the Second Circuit applies a "narrow" approach to application of the primary jurisdiction doctrine. Goya Foods, Inc. v. Tropicana Prod., Inc., 846 F.2d 848, 851 (2d Cir.1988); see also Ellis, 443 F.3d at 91. "The case law establishes that it should not be lightly invoked or applied, and that cases in which its application is warranted tend to be the exception, not the norm." Global Crossing Bandwith, Inc. v. OLS, Inc., No. 05-CV-6423, 2009 WL 763483, at *2 (W.D.N.Y. Mar. 19, 2009).

1. Whether the Question at Issue Falls Within the Conventional Experience of Judges or Involves Technical or Policy Considerations Within the Agency's Particular Field of Expertise

With regard to the first prong, primary jurisdiction referral...