In re NextWave Personal Communications, Inc., Bankruptcy No. 98 B 21529(ASH). Adversary No. 98-5178A.
| Decision Date | 22 June 1999 |
| Docket Number | Bankruptcy No. 98 B 21529(ASH). Adversary No. 98-5178A. |
| Citation | 235 BR 305 |
| Parties | In re NextWAVE PERSONAL COMMUNICATIONS, INC., et al., Debtors. NextWave Personal Communications, Inc., Plaintiff, v. Federal Communications Commission, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Andrews & Kurth L.L.P. by Deborah L. Schrier-Rape, Gregory Bevel, James P. Muenker, Dallas, TX, for plaintiff/debtor.
Mary Jo White, United States Attorney for Southern District of New York by Daniel S. Alter, Jeffrey Oestericher, Wendy H. Schwartz, Edward A. Smith, New York City, for defendant.
Kasowitz, Benson, Torres & Freedman, LLP by David M. Friedman, Robert M. Novick, New York City, for Official Committee of Unsecured Creditors.
DECISION ON REMEDY
On May 12, 1999 this Court issued its decision (the "May 12 Decision") after trial on the merits of the constructive fraudulent conveyance claim asserted by plaintiff-debtor NextWave Personal Communications, Inc. ("NPCI") against defendant Federal Communications Commission ("FCC"). The Court left open the question of remedy and sought further illumination of the parties' positions in light of the ruling on the merits.
To avoid unnecessary repetition, this Decision on Remedy shall be deemed a supplement to and a part of the May 12 Decision. Having ruled on the issue at the May 26 hearing on remedy and signed an order and judgment granting the remedy sought by NPCI, the purpose of this Decision is to set forth the grounds for the ruling.
NPCI's position is based upon the words of the statute. Section 544 of the Bankruptcy Code, upon which the claim is based, states that "the trustee may avoid ... any obligation incurred by the debtor that is voidable under applicable law...." NPCI points out that, unlike other provisions of the Bankruptcy Code (e.g., Sections 106(a)(2), (3), 305(a), 1109(b)), which provide that the "court may" or a "party in interest may" do thus and so, the election to avoid a constructively fraudulent transfer is specifically delegated to "the trustee." As debtor-in-possession with all the rights of a trustee under Section 1107, NPCI has requested and states that it is entitled to the avoidance remedy provided by the statute. In addition, NPCI argues that the avoidance remedy is consistent with the objectives of both the Bankruptcy Code and Section 309(j) of the Federal Communications Act. Referring to the overarching bankruptcy policy favoring reorganization, NPCI stresses that avoidance of the obligation is vital to NPCI's reorganization.
The literal terms of Section 544 () appear to call for avoidance of the entire obligation where the statutory criteria for avoidance are met. Recognizing that avoidance of the entire obligation would be inappropriate in many cases, particularly where a constructively fraudulent transaction is at issue and the claim is not based upon any element of bad faith on the part of the obligee, NPCI asserts that the FCC should be entitled to a claim in the amount of $1,023,211,000 representing the value conferred as found in the May 12 Decision. NPCI has already paid $474,364,806, leaving a balance due of $548,846,194 to be paid in accordance with the installment provisions of the FCC regulations.
As a practical matter this remedy results in avoidance of the $3,720,437,000 portion (the "Fraudulently Incurred Obligation") of NPCI's total bids for its 63 C block licenses which exceeded the combined value of those licenses and the 3 % Payment.
In its Supplemental Memorandum of Law Regarding Remedy, the FCC observes that this case arises at the intersection of the Bankruptcy Code and the Federal Communications Act, and that this Court must give effect to both statutes if possible. To this end, the FCC asserts that:
The Court must honor two essential principles: (1) as between debtor NextWave and the FCC, the entire $4.74 billion C block payment obligation remains valid and is only partially avoidable to the extent necessary to benefit NextWave\'s bona fide creditors; and (2) NextWave cannot retain its 63 C block licenses without satisfying its auction bids in full.
FCC Memo on Remedy at 2. To accomplish these objectives, the FCC concludes its Memorandum on Remedy by asserting that the Court should:
... (1) order NextWave to surrender its 63 C block licenses to the FCC; (2) allow the FCC to retain all of NextWave\'s down payments in partial satisfaction of its unavoidable claim, or, in the alternative, to retain $142,309,000 in down payments, direct that the remaining $332,055,806 in down payments be paid to NextWave\'s estate, and permit the FCC to file an unsecured claim against NextWave\'s estate for any deficiency in its recovery of $1,023,211,000; and (3) subordinate the FCC\'s claim for the Fraudulently Incurred Obligation to the general unsecured claims.
Unsure of the meaning and purpose of the FCC's remedial objectives, the Court requested clarification of its position at the May 26 hearing. In explaining its primary objective, the FCC acknowledged or stated among other things:
Still uncertain of the FCC's primary objective and theory of remedy, the Court asked whether the FCC would seek rescission (i.e., return to the FCC of the 63 licenses and return to NPCI of the $473 million of deposits) as an alternative if the remedy proposed by the FCC were rejected. The FCC responded that its paramount interest is in getting the licenses back, but stressed to the Court that rescission is "not what we seek" (id. at 29).
In short, the FCC wants to recover the 63 licenses, keep the $473 million of deposits or, in the alternative, keep the $142,309,000 3% Payment and an unsubordinated "deficiency claim" (i.e., $1,023,211,000 less $142,309,000 less whatever the FCC may receive from its resale of the licenses) and, in addition, retain an allowed claim in NPCI's Chapter 11 case for the entire $3.7 billion Fraudulently Incurred Obligation subordinated to existing, but not future, unsecured creditors and, of course, senior to equity both old and new. Not surprisingly, the FCC cites to no case law supporting this astonishing and novel remedy for constructive fraudulent conveyance, and for the reasons discussed below the Court sees no reason to grant it.
This Court's fashioning of a remedy is guided by the canon that statutory interpretation begins with the language of the statute itself. Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985). See also United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240-42, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (); Central Trust Co. v. Official Creditors' of Geiger Enterprises, Inc., 454 U.S. 354, 359-60, 102 S.Ct. 695, 70 L.Ed.2d 542 (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)) ("it is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain ... the sole function of the courts is to enforce it according to its terms").
Section 544(b) of the Bankruptcy Code provides: "The trustee may avoid ... any obligation incurred by the debtor that is voidable under applicable law...." Section 544(b) incorporates non-bankruptcy law to supplement the trustee's avoiding powers under the Bankruptcy Code. The avoidance powers are intended to promote equitable distribution among creditors by bringing improperly transferred property back into the debtor's estate. In re Best Products Co., Inc., 168 B.R. 35, 57 (Bankr. S.D.N.Y.1994) (). Specifically, Section 544(b) allows the trustee or debtor-in-possession in a case under Chapter 11 to invoke the rights of an existing unsecured creditor to set aside a transaction that is voidable under applicable state law.
An essential element in the exercise of the avoidance powers in Section 544 et seq. of the Bankruptcy Code is that the remedy be "for the benefit of the estate." 11 U.S.C. § 550(a), emphasis supplied. Section 550 thereby places an equitable restraint on the exercise of avoiding powers. The "estate" comprises all interests, including all creditors and equity. Thus, it might be inappropriate to use the avoiding powers if the benefit accrued only to the equity or to only one creditor or one class of creditors. Under the "benefit of the estate" standard, "what matters is whether creditors will receive `some benefit from the recovery of the challenged transfers.'" In re Kennedy Inn Associates, 221 B.R. 704, 715 (Bankr.S.D.N.Y.1998) quoting from In re Centennial Industries, Inc., 12 B.R. 99, 102 (Bankr.S.D.N.Y.1981). See also In re Glanz, 205 B.R. 750, 758 ().
Recovery of the avoided transfer is appropriate even if the benefit to the estate is indirect. 5 Collier on Bankruptcy ¶ 550.022, p. 550-7 (15th ed.19...
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