United States Ex Rel. Federal Communications Commission v. GWI PCS 1 Inc. (In Re GWI PCS 1 Inc.)

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-11294
IN THE MATTER OF: GWI PCS 1 INC;
GWI PCS 2 INC; GWI PCS 3 INC;
GWI PCS 4 INC; GWI PCS 5 INC;
GWI PCS 6 INC; GWI PCS 7 INC;
GWI PCS 8 INC; GWI PCS 9 INC;
GWI PCS 10 INC; GWI PCS 11 INC;
GWI PCS 12 INC; GWI PCS 13 INC;
GWI PCS 14 INC; GENERAL WIRELESS INC;
GWI PCS INC,
Debtors,
versus
UNITED STATES OF AMERICA, on behalf of
FEDERAL COMMUNICATIONS COMMISSION,
Appellant,
versus
IN THE MATTER OF: GWI PCS 1 INC;
GWI PCS 2 INC; GWI PCS 3 INC;
GWI PCS 4 INC; GWI PCS 5 INC;
GWI PCS 6 INC; GWI PCS 7 INC;
GWI PCS 8 INC; GWI PCS 9 INC;
GWI PCS 10 INC; GWI PCS 11 INC;
GWI PCS 12 INC; GWI PCS 13 INC;
GWI PCS 14 INC; GENERAL WIRELESS INC;
GWI PCS INC,
Appellees.
Appeal from the United States District Court
for the Northern District of Texas
October 20, 2000
Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.
GARWOOD, Circuit Judge:
The Federal Communications Commission (FCC), on behalf of the
United States, appeals from the district court’s judgment affirming a
bankruptcy reorganization plan for debtors General Wireless, Inc. (GWI),
GWI PCS, Inc. (GWI PCS), and GWI PCS 1, GWI PCS 2, GWI PCS 3, GWI PCS
4, GWI PCS 5, GWI PCS 6, GWI PCS 7, GWI PCS 8, GWI PCS 9, GWI PCS 10,
GWI PCS 11, GWI PCS 12, GWI PCS 13, GWI PCS 14 (the subsidiary debtors),
(collectively, the Debtors). The reorganization plan included an order
that the subsidiary debtor’s and GWI PCS’s obligation to pay $954
million to the FCC, evidenced by promissory notes signed by the
subsidiary debtors, as part of GWI PCS’s winning bids for fourteen
radio-spectrum licenses at an FCC auction, was a constructive fraudulent
transfer under 11 U.S.C. § 548. The bankruptcy court therefore avoided
approximately $894 million of the $954 obligation to the FCC and allowed
the subsidiary debtors to retain the licenses. The FCC now appeals the
avoidance judgment, arguing that its appeal of the avoidance judgment
is not equitably moot and that the bankruptcy court improperly assumed
the FCC’s regulatory authority and erred in avoiding $894 million of the
obligation to the FCC. We affirm.
Facts and Proceedings Below
In 1993, Congress passed several amendments to the Federal
Communications Act (FCA), including section 309(j). See Omnibus Budget
Reconciliation Act of 1993, Pub. L. No. 103-66, § 6002(a), 107 Stat.
312, 387 (1993). Section 309(j) authorized the FCC to sell
electromagnetic licenses for personal communications services (PCS) to
private companies by auction. Section 309(j) also required the FCC to
design auctions that “ensure that small businesses, rural telephone
2
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)(4)(D); see 47 U.S.C. §
309(j)(3)(B). To further this directive, the FCC reserved the C and F-
blocks of the electromagnetic spectrum1 for auction to small,
entrepreneurial companies referred to as “designated entities.” See 47
C.F.R. § 24.709 (1995).
The C-block auction began in December 1995 and ended on May 6,
1996. On December 18, 1995, GWI made the initial payment of
approximately $53 million to qualify GWI PCS, a subsidiary of GWI, to
bid at the C-block auction.2 At the conclusion of the C-block auction,
GWI PCS was the high bidder for fourteen PCS licenses, covering areas
in Southern Florida, Northern California, and Atlanta, Georgia. See In
re Applications of GWI PCS, Inc., 12 F.C.C.R. 6441 ¶ 2, 1997 WL 1599311
The megahertz of radio frequency determines the carrying
capacity of a block of wireless spectrum, and the FCC had divided the
electromagnetic spectrum allocated to PCS licenses into “blocks”
designated as the A, B, C, D, E, and F-blocks. The A, B, and C-blocks
consist of 30 megahertz of spectrum, while the D, E, and F-blocks of 10.
Another measurement, a “pop”, represents 1000 persons within the
geographic area covered by a particular licensing block. Dollars per
megahertz-pop, a generally accepted industry measurement standard,
represents the amount paid for a license that would allow the provision
of a particular level of communications data to a particular number of
people.
2
As part of the FCC’s C-block auction rules, bidders were
required to deposit “qualifying amounts” in order to participate in the
auction. See 47 C.F.R. § 24.711(a)(1) (1995) (“Each eligible bidder for
licenses on frequency Block C subject to auction shall pay an upfront
payment of $0.015 per MHz per pop for the maximum number of licenses (in
terms of MHz-pops) on which it intends to bid pursuant to § 1.2106 of
this chapter and procedures specified by Public Notice.”).
3
(Jan. 27, 1997). GWI PCS’s winning bids were each approximately five
percent higher than the next-highest bid and totaled approximately $1.06
billion.3 On May 22, 1996, GWI PCS filed license application forms for
the fourteen licenses. See 47 C.F.R. § 24.707 (1995)4. On May 31,
1996, the FCC released a public notice accepting GWI PCS’s applications
for the licenses and setting July 1, 1996 as the cut-off date for
parties in interest to file objections, pursuant to 47 C.F.R. § 24.830(1995), to GWI PCS receiving the licenses. See In re Applications of
GWI PCS, Inc., 12 F.C.C.R. 6441 ¶ 2, 1997 WL 159931 (Jan. 27, 1997).
Two parties did object, contending that GWI PCS had violated the foreign
ownership restrictions, see 47 U.S.C. § 310(b), 47 C.F.R. § 24.804(b)
(1995), and the rules against collusive bidding, see 47 C.F.R. §
1.2105(c) (1995)5. See In re Applications of GWI PCS, Inc., 12 F.C.C.R.
3
The C-block auction resulted in the awarding of 493 C-block
licenses to approximately 90 designated entities for a total bid amount
of approximately $10.2 billion.
4
47 C.F.R. § 24.707 states as follows:
“Each winning bidder will be required to submit a long-
form application on FCC Form 600, as modified, within ten
(10) business days after being notified that it is the
winning bidder. Applications on FCC Form 600 shall be
submitted pursuant to the procedures set forth in Subpart I
of this Part and § 1.2107 (c) and (d) of this Chapter and any
associated Public Notices. Only auction winners (and
applicants seeking partitioned licenses pursuant to
agreements with auction winners under § 24.714) will be
eligible to file applications on FCC Form 600 for initial
broadband PCS licenses in the event of mutual exclusivity
between applicants filing Form 175. Winning bidders need not
complete Schedule B to Form 600.”
5
47 C.F.R. § 24.701 provides that the competitive bidding
procedures for broadband PCS incorporate “[t]he general competitive
4
6441 ¶ 4, 1997 WL 159931 (Jan. 27, 1997). After investigating the bases
for the objections, the FCC concluded that GWI PCS did not exceed the
foreign ownership limitations and that there was insufficient evidence
to find that GWI PCS had violated the FCC’s rules prohibiting collusion
in the bidding process. See id. ¶ 5.
On January 27, 1997, the FCC approved the granting of the fourteen
licenses for which GWI PCS was the high bidder. See Wireless
Telecommunications Bureau Announces Grant of Broadband Personal
Communications Services Entrepreneurs’ C Block Licenses to GWI PCS Inc.,
12 F.C.C.R. 1215, 1997 WL 28957 (Jan. 27, 1997). At GWI’s request, each
license was conditionally transferred to one of the fourteen subsidiary
debtors.6 See id. at n.1. On February 3, 1997, GWI paid the second
half of the down-payment, $53 million, for the licenses on behalf of the
subsidiary debtors. On March 10, 1997, the fourteen subsidiary debtors
executed notes to the FCC for amounts totaling approximately $954
million–the sum of the winning bids for the fourteen licenses less the
ten percent in down-payments made by GWI. The notes were sent to the
bidding procedures found in 47 CFR Part 1, Subpart Q . . . unless
otherwise provided in [47 C.F.R. Part 24, Subpart H].”
6
Pursuant to the FCC regulations issued under 47 U.S.C. § 309(j),
winning bidders that were “small businesses” were required to pay only
10 percent of their winning bids in cash; the remaining 90 percent could
be paid in installments over a ten-year period at below market interest
rates. See 47 C.F.R. §§ 1.2110(e), 24.711(b) (1995). The transfer of
the licenses remained contingent on the subsidiary debtors signing the
notes and the depositing of the remaining 5 percent of the down-payment;
however, upon the execution of the notes on March 10, 1997, the licenses
became effective as of January 27, 1997.
5
FCC by Federal Express on March 13, 1997 and were received by the FCC
on March 14, 1997.
In early 1997, a significant number of C-block licensees,
experiencing difficulties in securing financing and facing the prospect
of early default on their installment payments to the FCC, petitioned
the FCC for relief from their licenses’ installment payments.7 In
February 1997, the FCC suspended the C-block installment payments and
commenced rule-making proceedings to address the problems faced by C-
block licensees. Following six months of administrative proceedings,
the FCC issued an order on October 16, 1997, the Restructuring Order,
that provided C-block licensees with several options to ease their
financial difficulties, including allowing a licensee to return all or
portions of a license to the FCC in exchange for significant debt
7
These difficulties were generally limited to the winning bidders
at the C-block auction, because the winning bids at the A, B, D, E, and
F-block auctions were considerably lower than the winning bids at the
C-block auction when measured in dollars per megahertz-pop, see supra
note 1. The average winning bid at the A and B-block auctions held in
March 1995 was $.50 per megahertz-pop. At the D, E, and F-block
auctions concluded in January 1997, the average winning bid for the D
and E-blocks, in cash, was approximately $.35 per megahertz-pop, and for
the F-blocks, which like the C-block auction was reserved for qualified
entities and thus subject to favorable ten-year financing, was $.25 per
megahertz-pop. In contrast, the average winning bid at the C-block
auction in May 1996 was considerably higher per megahertz-pop. One of
the reasons proffered for the steep decline in the value of C-block
licenses after the May 1996 auction was the FCC’s decision to auction
the D, E, and F-blocks after the C-block auction was concluded but
before the C-block licenses were to be issued, thereby greatly
increasing the volume of licenses soon to be available for purchase at
auction. For a general survey of the difficulties facing C-block
licensees, see Carolyn Hochstadter Dicker, PCS Licenses and the
“Specter” of Bankruptcy, 6 COMMLAW CONSPECTUS 59 (1998).
6
reduction. See In re Amendment of the Commission’s Rules Regarding
Installment Payment Financing for Personal Communications Services (PCS)
Licenses, 12 F.C.C.R. 16436, 1997 WL 643811 (Sept. 25, 1997). The FCC,
however, expressly rejected proposals that would have allowed licensees
to retain their licenses without paying their winning bids in full,
because, in the FCC’s view, the C-block auction had been designed to
ensure that the licenses were to be allocated to users who could
demonstrate, through their ability to pay the highest price, that they
possessed the most highly valued use for the licenses. See id. ¶ 5.
In response to numerous requests for reconsideration of the
Restructuring Order, the FCC altered the Restructuring Order slightly
in March 1998 to allow licensees greater flexibility in making their
decisions regarding the options provided in the Restructuring Order;
however, the basic framework of the Restructuring Order was retained.
See In re Amendment of the Commission’s Rules Regarding Installment
Payment Financing for Personal Communications Services (PCS) Licenses,
13 F.C.C.R. 8345, 1998 WL 130176 (Mar. 23, 1998).
The subsidiary debtors did not elect to pursue one of the options
for relief presented by the FCC in the Restructuring Order. Instead,
on October 20, 1997, the subsidiary debtors filed voluntary bankruptcy
petitions under chapter 11 in the Northern District of Texas. On
October 29, 1997, the subsidiary debtors initiated an adversary
proceeding against the FCC, in part to avoid their payment obligations
under the promissory notes executed in March 1997 on the basis that
7
those obligations constituted constructive fraudulent transfers for
which the subsidiary debtors had received less than reasonably
equivalent value, i.e., the licenses were worth less than the notes, and
had become insolvent as a result. On January 26, 1998, GWI and GWI PCS
also filed for bankruptcy protection, and their chapter 11 cases were
consolidated with those of the fourteen subsidiary debtors. In an
amended complaint, GWI and GWI PCS joined the adversary proceeding
against the FCC, seeking to avoid any obligation that they may have
incurred to pay the balance of the bid price to the FCC. The FCC
defended against the Debtors’ attempt to avoid the obligations by
arguing, inter alia, that the value of the licenses received by the
Debtors should be measured as of the date the C-block auction closed,
May 8, 1996, and that the sixteen GWI entities should be collapsed and
treated as a single entity. In addition, the FCC maintained that, if
the bankruptcy court allowed the subsidiary debtors to retain the
licenses without paying the bid price, the FCC’s regulatory authority
will be effectively usurped through the bankruptcy proceeding and the
terms of license ownership as set forth in FCC regulations will be
improperly altered through bankruptcy.
After conducting a trial on the adversary proceeding from April 13,
1998 through April 17, 1998, the bankruptcy court in a bench ruling on
April 24, 1998 granted the relief sought by the Debtors. The bankruptcy
court found that, although the value of the fourteen C-block licenses
on the date the auction closed, May 8, 1996, was $1.06 billion, the
8
licenses’ value had declined to $166 million by January 27, 1997,8 the
date the FCC conditionally granted the licenses to the subsidiary
debtors who then became obligated to pay the remaining balance of GWI
PCS’s bids.9 In addition, the bankruptcy court found that when the
subsidiary debtors executed the notes, they held assets totaling $2
million plus the fourteen licenses valued at $166 million with debts,
represented by the notes, of approximately $954 million, thereby
rendering the subsidiary debtors insolvent. The bankruptcy court also
ruled that the GWI corporations were all separate legal entities,
declining to treat them as one under the FCC’s alter ego theory10, and
8
The bankruptcy court found that the licenses dropped in value
to between $132 million and $200 million and appears to have simply
split the difference in arriving at the $166 million figure.
9
The bankruptcy court also determined that the value of the
licenses did not change between January 27, 1997 and March 14, 1997; and
that therefore, whether the transfer of the licenses from the FCC to the
subsidiary became effective on January 27, 1997–the date the licenses
were awarded–or on March 14, 1997–the date the notes securing the
obligation to pay the remaining $954 million were received by the
FCC–was of no moment to the value of the licenses for purposes of
avoidance.
10
With regard to this conclusion, the bankruptcy court stated as
follows in its oral ruling:
“The separate corporations, all being separate legal
entities, shall not be considered the alter ego of the parent
debtor. The debtors perpetuated no sham or fraudulent
transaction on the government. Indeed, the debtors acted in
good faith, following all FCC regulations and rules. The
government has not established the applicability of any
common law alter ego theory.
The government contends, however, that federal case law
recognizes situations when corporate form should be ignored,
if necessary, to preserve or protect some public policy.
. . .
9
refused to set the date the auction closed, May 8, 1996, as the date to
evaluate the transfer of the licenses, because the bankruptcy court
reasoned that it was not until January 27, 1997 that the licenses were
issued by the FCC and the transfer completed. Thus, January 27, 1997
became the date for determining avoidability of the notes. The
bankruptcy court therefore ruled that the obligation incurred to the FCC
above the actual value of the licenses on January 27, 1997, or $894
million, was a constructive fraudulent transfer, avoidable under 11
1 1
U . S . C . § 5 4 8 .
As the Court has found, there is no evidence of a fraud
or that the corporate structure was used as a sham. GWI had
legitimate business purposes for the use of the corporate
form, which the FCC recognized as common and approved. The
subsidiaries were not created to be a conduit or agent . .
., but to be operating entities in their respective areas of
the country. This Court should, therefore, honor the
separate corporate entities.”
Before the bankruptcy court, the FCC sought to hold GWI responsible for
the notes and bids under an alter ego theory. As GWI did not
participate in the actual bidding at the C-block auction and did not
sign any promissory notes, in the absence of alter ego, GWI incurred no
obligation towards the unpaid balance of the bid price. The FCC did not
appeal the foregoing finding to the district court and does not raise
it before this Court.
11
11 U.S.C. § 548, prior to being amended in 1998, stated as
follows:
“(a) The trustee may avoid any transfer of an interest
of the debtor in property, or any obligation incurred by the
debtor, that was made or incurred on or within one year
before the date of the filing of the petition, if the debtor
voluntarily or involuntarily–
(1) made such transfer or incurred such
obligation with actual intent to hinder, delay, or
defraud any entity to which the debtor was or
became, on or after the date that such transfer
was made or such obligation was incurred,
indebted; or
10
(2)(A) received less than a reasonably
equivalent value in exchange for such transfer or
obligation; and
(B)(i) was insolvent on the date that
such transfer was made or such obligation
was incurred, or became insolvent as a
result of such transfer or obligation;
(ii) was engaged in business or a
transaction, or was about to engage in
business or a transaction, for which
any property remaining with the debtor
was an unreasonably small capital; or
(iii) intended to incur, or
believed that the debtor would incur,
debts that would be beyond the
debtor's ability to pay as such debts
matured.
(b) The trustee of a partnership debtor may avoid any
transfer of an interest of the debtor in property, or any
obligation incurred by the debtor, that was made or incurred
on or within one year before the date of the filing of the
petition, to a general partner in the debtor, if the debtor
was insolvent on the date such transfer was made or such
obligation was incurred, or became insolvent as a result of
such transfer or obligation.
(c) Except to the extent that a transfer or obligation
voidable under this section is voidable under section 544,
545, or 547 of this title, a transferee or obligee of such
a transfer or obligation that takes for value and in good
faith has a lien on or may retain any interest transferred
or may enforce any obligation incurred, as the case may be,
to the extent that such transferee or obligee gave value to
the debtor in exchange for such transfer or obligation.
(d)(1) For the purposes of this section, a transfer is
made when such transfer is so perfected that a bona fide
purchaser from the debtor against whom applicable law permits
such transfer to be perfected cannot acquire an interest in
the property transferred that is superior to the interest in
such property of the transferee, but if such transfer is not
so perfected before the commencement of the case, such
transfer is made immediately before the date of the filing
of the petition.
(2) In this section–
(A) ‘value’ means property, or satisfaction
or securing of a present or antecedent debt of the
debtor, but does not include an unperformed
promise to furnish support to the debtor or to a
11
The bankruptcy court similarly avoided GWI PCS’s obligation to the FCC,
reasoning that GWI PCS did not incur any obligation to pay the remainder
of the $1.06 billion auction price for the licenses until the remaining
five percent down-payment was made, the formal application for the
licenses was submitted, and the licenses were obtained after the FCC’s
regulatory process and review. Therefore, the bankruptcy court
concluded that GWI PCS’s obligation to pay the remainder of the bid
price was not incurred until January 27, 1997. The bankruptcy court
also rejected the FCC’s argument that non-payment of the entire
obligation resulted in cancellation of the licenses. On June 4, 1998,
the bankruptcy court entered judgment on the avoidance claim12, reducing
relative of the debtor;
(B) a commodity broker, forward contract
merchant, stockbroker, financial institution, or
securities clearing agency that receives a margin
payment, as defined in section 101(34), 741(5), or
761(15) of this title, or settlement payment, as
defined in section 101(35) or 741(8) this title,
takes for value to the extent of such payment;
(C) a repo participant that receives a
margin payment, as defined in section 741(5) or
761(15) of this title, or settlement payment, as
defined in section 741(8) of this title, in
connection with a repurchase agreement, takes for
value to the extent of such payment; and
(D) a swap participant that receives a
transfer in connection with a swap agreement takes
for value to the extent of such transfer.” 11
U.S.C. § 548 (1996).
12
In its final judgment on the avoidance claims, the bankruptcy
court ordered, in relevant part, that:
“1. the obligations that GWI PCS, Inc. (“PCS”) incurred to
the United States, acting through the Federal
Communications Commission (“FCC”), on May 8, 1996 are
not avoided because as of that date, PCS received
reasonably equivalent value in exchange for those
12
the remaining payment obligations for the fourteen licenses from
approximately $954 million to $60 million13, which amount is secured by
the licenses.14 The FCC then appealed the avoidance order to the
district court, maintaining that the Debtors remained obligated for the
full face value of the notes and that the bankruptcy court erred in
obligations;
2. the obligations that GWI PCS 1, Inc., GWI PCS 2, Inc.,
GWI PCS 3, Inc., GWI PCS 4, Inc., GWI PCS 5, Inc., GWI
PCS 6, Inc., GWI PCS 7, Inc., GWI PCS 8, Inc., GWI PCS
9, Inc., GWI PCS 10, Inc., GWI PCS 11, Inc., GWI PCS
12, Inc., GWI PCS 13, Inc., and GWI PCS 14, Inc. (the
“Subsidiary Debtors”) and PCS incurred to the United
States, acting through the FCC, on January 27, 1997 are
avoided pursuant to 11 U.S.C. § 548(a)(2)(A) and (B)(i)
& (ii), because the Subsidiary Debtors and PCS did not
receive reasonably equivalent value in exchange for
these obligations, and on this date, the Subsidiary
Debtors and PCS were or became insolvent and were
undercapitalized for the contemplated business activity
they intended to pursue;
3. pursuant to 11 U.S.C. § 548(c), the obligations of PCS
and the Subsidiary Debtors to the United States are
reduced to a $60 million, which amount is the
difference between the value of the obligations as of
January 27, 1997 -- $166 million -- and the $106
million already paid on the obligations, and which
amount is secured by the licenses issued by the FCC to
the Subsidiary Debtors.”
13
The $60 million figure represents the value of the licenses on
January 27, 1997, $166 million, less the two $53 million down-payments
made by GWI.
14
As an alternative remedy to avoidance, the Debtors moved the
bankruptcy court to rescind the notes. Avoidance differs considerably
from rescission. Rescission unwinds the transaction and restores the
status quo ante, whereas avoidance allows a debtor to retain the benefit
of its bargain while rewriting the debtor’s obligations under that
bargain. The bankruptcy court declined to order a rescission of the
notes, see 11 U.S.C. §§ 105 & 550, as it would have required a reauction
of the fourteen licenses, resulting in further delay in the development
of licenses by small business, in contravention to Congress’s mandate
in § 309(j) of the FCA.
13
avoiding approximately $894 million of the subsidiary debtors’ and GWI
PCS’s obligation to the FCC.15
Over the FCC’s objection, the bankruptcy court proceeded to confirm
a plan of reorganization, which incorporated its prior ruling that
avoided $894 million of the subsidiary debtors’ and GWI PCS’s obligation
to the FCC and enjoined the FCC from taking any action to revoke the
fourteen licenses16. The reorganization plan contained two possible
outcomes of the reorganization effort. The first option, labeled the
“Business Alternative,” provided for the Debtors raising money in the
financial markets and continuing with their original plan to offer
wireless communications services. In the event the Business Alternative
failed, the plan also provided for a “Litigation Alternative,” under
which the Debtors would return the fourteen licenses to the FCC and
pursue litigation against the FCC to recover the $106 million down-
15
On appeal to the district court, the FCC presented four
arguments: (1) the subsidiary debtors and GWI PCS had incurred a binding
obligation to pay the bid price for the licenses on May 8, 1996, the
date the auction closed; (2) permitting the subsidiary debtors to retain
the licenses without complying fully with the terms of the bid would
unlawfully alter the terms for C-block license ownership established by
FCC regulations; (3) the bankruptcy court erred in extinguishing, rather
than subordinating, the FCC’s claim in excess of $166 million; and (4)
the bankruptcy court erred in its valuation of the licenses on January
27, 1997 at $166 million. Notably, the FCC did not appeal the
bankruptcy court’s determination that the debtor entities should not be
collapsed or treated as one entity under an alter ego theory.
16
The confirmation order, in relevant part, states as follows:
“[It is further] ORDERED that on and after the
Effective Date, the FCC shall be and hereby is enjoined from
taking any action whatsoever against the Debtors to revoke
their PCS licenses in connection with any claim, transaction
or occurrence which arose prior to the Effective Date . . ..”
14
payment for the licenses, which would then be distributed among the
Debtors’ creditors. On September 10, 1998, the bankruptcy court,
pursuant to 11 U.S.C. § 1129, entered an order confirming the plan of
reorganization. Under the reorganization plan, the subsidiary debtors
and GWI PCS were obligated to pay the FCC $60 million at a six-and-one-
half per cent rate of interest; this $60 million obligation was secured
by the licenses. The bankruptcy court also modified the reorganization
plan to preserve certain issues raised in the appeal of the avoidance
judgment.17 In short, if a reviewing court did not affirm the avoidance
judgment and determined that the bankruptcy court’s valuation of the
licenses was incorrect, the FCC would receive an increased secured claim
17
In the confirmation order, the bankruptcy court provided that:
“[It is further] ORDERED that in the event the
Avoidance Judgment is not finally affirmed on appeal, and the
appellate process results in a judgment producing a claim for
the FCC in an amount in excess of $60 million, the FCC’s
secured claim, for purposes of the Plan and treatment
thereunder, shall be increased from $60 million to the lesser
of (i) the amount of the claim produced by the final judgment
or (ii) the amount of the claim produced by the average price
per pop bought at the FCC re-auction of C Block licenses in
March 1999 multiplied by the number of the pops covered by
the Debtors’ licenses; and it is further
[] ORDERED that if the amount of the FCC’s claim as
determined on appeal is greater than the value established
at the reauction, the FCC shall have an unsecured claim
against the Debtors for the difference between the amount
determined by the reauction and the amount determined on
appeal, payable on a pro rata basis from the Unsecured
Creditors’ Fund with all other Unsecured Claims.”
The reorganization plan did not provide for an unsecured claim for the
FCC, but did establish a creditors’ fund of $18 million for the payment
of all unsecured claims in the event that the avoidance judgment was
reversed or modified on appeal, thus keeping available funds if the FCC
became entitled to an unsecured claim.
15
equal to the lesser of (1) the amount determined by final judgment, or
(2) the average price produced at the FCC’s reauction of C-block
licenses scheduled for March 199918. If the amount of the FCC’s claim
determined on appeal was greater than the price at the reauction, the
FCC’s claim would be bifurcated under 11 U.S.C. §§ 502 & 506, with the
FCC receiving an additional unsecured claim for the difference between
the amount determined at the reauction and the amount determined on
appeal, payable out of the creditors’ fund (see note 17, supra) on a pro
rata basis with other unsecured creditors. In preserving the FCC’s
appellate rights, the bankruptcy court sought to provide a fair and
equitable means for the FCC to protect its interest in the licenses
without unduly hindering the Business Alternative and the Debtors’
ability to finance and implement the reorganization plan.
The FCC appealed the confirmation order to the district court. The
district court, having appellate jurisdiction under 28 U.S.C. § 158(a)19,
18
The reauction began on March 23, 1999 and concluded on April
20, 1999. The average bid price per pop of a C-block license bought at
the reauction was $3.88. As the subsidiary debtors’ 14 licenses cover
approximately 17.9 million pops, the amount of the claim produced by the
average price per pop bought at the FCC reauction of the C-block
licenses multiplied by the number of the pops covered by the subsidiary
debtors’ licenses would total approximately $69,452,000.
19
28 U.S.C. § 158(a) provides as follows:
“(a) The district courts of the United States shall
have jurisdiction to hear appeals[]
(1) from final judgments, orders, and decrees;
(2) from interlocutory orders and decrees issued
under section 1121(d) of title 11 increasing or
reducing the time periods referred to in section 1121
of such title; and
(3) with leave of the court, from other
16
consolidated the FCC’s appeal of the confirmation order and its appeal
of the avoidance judgment. The FCC also sought a stay of both the
adversary judgment and the confirmation order of the bankruptcy court.
The district court entered a temporary stay on September 10, 1998, which
expired by its terms on September 30, 1998. On September 30, 1998, the
then-Chief Judge of this Court issued a stay “to preserve the status quo
and jurisdiction until . . . this court ha[s] an appropriate opportunity
to determine whether to stay the Avoidance Decision and the Confirmation
Decision until appeals therefrom are finally resolved.” In re United
States, No. 98-11123 (5th Cir. Sept. 30, 1998) (unpublished). This stay
was lifted by this Court on October 7, 1998. In re United States, No.
98-11123 (5th Cir. Oct. 7, 1998) (per curiam) (unpublished). No further
stay was secured by the FCC.
While the FCC’s consolidated appeals remained pending in the
district court, the Debtors proceeded, in the absence of a stay, to
perform some of the transactions set forth in the Business Alternative.
On October 29, 1998, the Debtors moved to dismiss the entirety of the
FCC’s appeal of the confirmation order and partially dismiss the FCC’s
appeal of the avoidance judgment, because the reorganization plan had
interlocutory orders and decrees;
and, with leave of the court, from interlocutory orders and
decrees, of bankruptcy judges entered in cases and
proceedings referred to the bankruptcy judges under section
157 of this title. An appeal under this subsection shall be
taken only to the district court for the judicial district
in which the bankruptcy judge is serving.”
17
been substantially consummated.20 The FCC opposed the motion to dismiss
its appeal, and when the district court had not ruled on the FCC’s
appeals nearly ten months later, the Debtors sought a writ of mandamus
from this Court directing the district court to issue a decision. The
mandamus petition was denied when the district court indicated that it
would rule by September 30, 1999. In re GWI PCS 1, Inc., No. 99-10923
20
The Debtors listed the following financial transaction as
having been conducted: (1) equity investors having provided
approximately $5.1 million in funding to the Debtors; (2) equity
investors having signed notes with a face value of approximately $5.1
million payable to the Debtors and the Debtors having drawn upon $4.4
million of these funds; (3) Lucent Technologies having funded $30
million to the Debtors; (4) a $28 million payment by the Debtors to
Hyundai Electronics of America; (5) the Debtors’ funding their
contemplated professional fees; (6) the retention of Prudential
Securities, Inc., as a financial advisor and lead manager of the
Debtors’ high yield debt offering, including a $150,000 non-refundable
retainer paid to Prudential; (7) paying an initial distribution to
unsecured creditors holding allowed claims; (8) paying the majority of
the Debtors’ remaining administrative expenses; (9) the Debtors’ issuing
$5 million in preferred stock; (10) the subsidiary debtors signing new
notes and security agreements in favor of the FCC; (11) the Debtors’
payment to the FCC of the first installment on the licenses,
approximately $2 million; (12) payment of the Debtors’ regular operating
expenses, including payroll, payroll taxes, property and equipment lease
payments, and other normal operating business expenses; (13) a $1.6
million payment from to the Debtors to Lucent Technologies in commitment
fees on credit facilities provided by Lucent; (14) the Debtors’ entering
into binding contracts by executing purchase orders to acquire $3
million of fast start services to design and construct their wireless
network; (15) the Debtors, with the assistance of Lucent Technologies,
having begun implementation of the design plans for their network and
the purchase of sophisticated equipment for use therein; (16) the
employment of Arthur Anderson to perform audit services for the years
1997 and 1998; (17) the Debtors having incurred other post-consummation
fees in excess of $150,000 in connection with the preparation of the
offering memorandum; and (18) the filing of UCC-1 financial statements
with the Secretary of State of Texas on behalf of Lucent Technologies.
Before the district court, the FCC did not dispute that these
transactions had occurred.
18
(5th Cir. Aug. 25, 1999) (unpublished).
On September 27, 1999, the district court issued a decision,
concluding that the Debtors had substantially consummated the plan of
reorganization under the Business Alternative21 and dismissing as
equitably moot the FCC’s appeal of the confirmation order and part of
the FCC’s appeal from the avoidance judgment. See United States v. GWI
PCS 1, Inc., 245 B.R. 59, 64 (N.D. Tex. 1999). Without identifying the
portions of the avoidance appeal that remained before it, the district
court held simply that “the court denies the United States’ remaining
claims with respect to the Avoidance Judgment.” Id. On September 30,
1999, the district court entered judgment “in accordance with the
court’s order of September 27, 1999", affirming the bankruptcy court’s
orders.22 The FCC timely appealed to this Court.
Discussion
The FCC asserts that the district court erred in three respects:
(1) dismissing portions of its appeal under the doctrine of equitable
mootness; (2) affirming the bankruptcy court’s avoidance judgment,
21
In fact, the bankruptcy court had closed the Debtors’
bankruptcy estates in July 1999, finding them to have been fully
administered.
22
The Debtors had cross-appealed the confirmation order to the
district court, arguing that the bankruptcy court’s requiring the
Debtors to reserve funds when the FCC’s claim was disallowed and
determining that the FCC had an impaired claim due solely to the
pendency of the appeal of the avoidance judgment were erroneous. See
id. at 64-65. The district court denied the Debtors’ claims, see id.
at 65, and the Debtors do not renew these contentions on appeal to this
Court.
19
despite its effect on the regulatory authority of the FCC over the
licenses; and (3) affirming the bankruptcy court’s decision that the
subsidiary debtors’ and GWI PCS’s obligation to the FCC was an avoidable
transfer. We will first address equitable mootness and then turn to the
FCC’s remaining arguments that are not equitably moot.
I Equitable Mootness
At the outset, the parties disagree as to the standard of review
this Court should apply when examining a district court’s dismissal of
an appeal as equitably moot. The FCC argues that, although the fact
findings by the district court should be accepted unless clearly
erroneous, the ultimate decision that an appeal is equitably moot
remains a legal determination to be reviewed de novo. Conversely, the
Debtors contend that we should review the district court’s dismissal of
the FCC’s appeal for abuse of discretion–the standard employed by the
Third and D.C. Circuits. In re Continental Airlines, 91 F.3d 553, 560
(3d Cir. 1996) (en banc); In re AOV Indus., Inc., 792 F.2d 1140, 1148
(D.C. Cir. 1986). In In re Berryman Products, Inc., 159 F.3d 941 (5th
Cir. 1998), we affirmed the district court’s dismissing as moot a
challenge to the confirmation of a reorganization plan of a chapter 11
debtor. See id. at 946. We prefaced our discussion of whether the
challenge was moot with the following statement regarding our standard
of review: “In the bankruptcy appellate process, we perform the same
function as did the district court: Fact findings of the bankruptcy
court are reviewed under a clearly erroneous standard and issues of law
20
are reviewed de novo.” Id. at 943 (footnote omitted); see In re Manges,
29 F.3d 1034, 1038-44 (5th Cir. 1994) (undertaking an independent review
of the district court’s dismissal of the debtors’ appeal of the
confirmation order).23 Accordingly, we agree with the FCC and will
employ this standard in reviewing the district court’s ruling on
equitable mootness in the case sub judice as well.
Equitable mootness “is not an Article III inquiry as to whether a
live controversy is presented; rather, it is a recognition by the
appellate courts that there is a point beyond which they cannot order
fundamental changes in reorganization actions.” In re Manges, 29 F.3d
at 1038-39 (citation omitted). “Consequently, a reviewing court may
decline to consider the merits of a confirmation order when there has
been substantial consummation of the plan such that effective judicial
relief is no longer available–even though there may still be a viable
dispute between the parties on appeal.” Id. at 1039 (citations
omitted). When evaluating whether an appeal of a reorganization plan
in a bankruptcy case is moot, this Court examines whether (1) a stay has
been obtained, (2) the plan has been substantially consummated, and (3)
the relief requested would affect either the rights of parties not
before the court or the success of the plan. See In re U.S. Brass
23
The Second and Eleventh Circuits have also adopted this
standard. See In re Burger Boys, Inc., 94 F.3d 755, 759 (2d Cir. 1996);
In re Club Assoc., 956 F.2d 1065, 1069 (11th Cir. 1992). See also In
re Western Pac. Airlines, Inc., 181 F.3d 1191, 1194 (10th Cir. 1999);
In re Filtercorp, Inc., 163 F.3d 570, 576 (9th Cir. 1998) (both
reviewing mootness de novo).
21
Corp., 169 F.3d 957, 959 (5th Cir. 1999) (citing In re Berryman Prods.,
159 F.3d at 944; In re Manges, 29 F.3d at 1039).24 We consider each in
turn.
A. Failure to Obtain a Stay
The first question in a mootness inquiry is whether the FCC secured
a stay to prevent execution of the reorganization plan. “[T]he
requirement of a stay encapsulates the fundamental bankruptcy policy of
reliance on the finality of confirmation orders by the bankruptcy
court.” In re Berryman Prods., 159 F.3d at 944 (footnote and citations
omitted).25 Although the FCC secured a temporary stay from the district
24
As we stated in Manges:
“‘The test for mootness reflects a court’s concern for
striking the proper balance between the equitable
considerations of finality and good faith reliance on a
judgment and the competing interests that underlie the right
of a party to seek review of a bankruptcy order adversely
affecting him.’” In re Manges, 29 F.3d at 1039 (quoting In
re Club Assoc., 956 F.2d at 1069).
The Eleventh Circuit considers an additional factor–whether the relief
sought would affect the reemergence of the debtor as a revitalized
entity. See In re Club Assoc., 956 F.2d at 1069 n.11.
25
The Seventh Circuit has explained that:
“The significance of an application for a stay lies in the
opportunity it affords to hold things in stasis, to prevent
reliance upon the plan of reorganization while the appeal
proceeds. A stay not sought, and a stay sought and denied,
lead equally to the implementation of the plan of
reorganization. And it is the reliance interests engendered
by the plan, coupled with the difficulty of reversing
critical transactions, that counsels against attempts to
unwind things on appeal. Every incremental risk of revision
of appeal puts a cloud over the plan of reorganization, and
derivatively over the assets of the reorganized firm.” In
re UNR Indus., 20 F.3d 766, 769-70 (7th Cir. 1994) (quoted
in In re Manges, 29 F.3d at 1040).
22
court on September 10, 1998 and from this Court on September 30, 1998,
the stay was lifted on October 7, 1998 and no further stays were
effectuated.
The FCC argues that “third parties are well aware of the
government’s position that licensees such as GWI are not entitled to
retain licenses without paying the full amount of the winning auction
bid. Investors’ knowledge of that position, as well as the pendency of
this appeal, appears to have had the same effect as a stay.” This
contention, however, has no bearing on whether a stay has or has not
been obtained; rather, this point instructs our determination of whether
the reorganization plan has been substantially consummated and the
effect on parties not before the court–the second and third factors in
our equitable mootness analysis–and cannot serve as a proxy for a
judicial stay of the reorganization plan. In the absence of a stay, the
reorganization plan became effective and has been implemented since
October 7, 1997. This factor therefore militates in favor of dismissal
for mootness.
B. Substantial Consummation of the Reorganization Plan
The second consideration in the mootness inquiry is whether the
reorganization plan has been substantially consummated. We have adopted
the “‘substantial consummation’ yardstick because it informs our
judgment as to when finality concerns and the reliance interests of
third parties upon the plan as effectuated have become paramount to a
resolution of the dispute between the parties on appeal.” In re Manges,
23
29 F.3d at 1041 (citations omitted). According to 11 U.S.C. § 1101(2):
“‘[S]ubstantial consummation’ means–
(A) transfer of all or substantially all of the property
proposed by the plan to be transferred;
(B) assumption by the debtor or by the successor to the
debtor under the plan of the business or of the management
of all or substantially all of the property dealt with by the
plan; and
(C) commencement of distribution under the plan.”
The FCC and the Debtors dispute whether the reorganization plan has
been substantially consummated. The Debtors reiterate on appeal the
numerous transactions completed following the confirmation of the
reorganization plan, see supra note 20, that persuaded the district
court to “conclude[] that the reorganization plan ha[d] been
substantially consummated because substantially all of the property
proposed by the plan to be transferred has been transferred, Debtors are
managing substantially all of the property dealt with by the plan, and
distribution under the plan has commenced.” GWI PCS 1, Inc., 245 B.R.
at 63. Although the FCC does not contest that these transactions have
occurred, the FCC maintains that they do not satisfy the “substantially
consummated” standard for three reasons: (1) only “insiders”, i.e., plan
participants, have provided funding for the Debtors in the
reorganization and have been paid funds in the reorganization and thus
lack a good faith expectation that the FCC’s appeal would not be
successful; (2) the Debtors have not obtained the $250 million in
financing set forth in the reorganization plan and thus have been unable
to create a wireless communications system; and (3) the “Litigation
Alternative” in the reorganization plan contemplated ongoing litigation
24
between the FCC and the Debtors, thereby not making return of licenses
to the FCC and consummation of the plan mutually exclusive. We disagree
with the FCC and conclude that the reorganization plan has been
substantially consummated.
First, the FCC’s argument that only “insiders” have provided
financing to the Debtors and have received payments from the Debtors and
therefore lack good faith reliance on the reorganization plan, even if
true, has never been a consideration in determining whether a
reorganization has been substantially consummated. See In re
Continental Airlines, 91 F.3d at 565 (“While we agree that reliance of
the Investors and others on the unstayed Confirmation Order is of
central importance to our [equitable mootness] analysis, to focus on the
‘reasonableness’ of that reliance, at least as measured by the
likelihood of reversal on appeal, is necessarily a circular enterprise
and therefore of little utility. . . . Our inquiry should not be about
the ‘reasonableness’ of the Investors’ reliance or the probability of
either party succeeding on appeal.”); cf. In re Sullivan Cent. Plaza,
1, Ltd., 914 F.2d 731, 734-35 (5th Cir. 1990) (refusing to consider the
alleged lack of good faith by a purchaser of debtor property in
determining whether an appeal was moot under 11 U.S.C. § 363(m)).26
Moreover, it would be natural for many, if not a majority, of the
transactions set forth in a reorganization plan to involve the
26
This is not to deny the relevance of such matters to the issue
of whether or not a stay should be granted in the first place.
25
participants of the chapter 11 proceedings. Therefore, this argument
fails.
Second, the FCC contends that the Debtors have yet to obtain all
the financing required under the reorganization plan and have neither
constructed nor made operable a personal communications system. The
Debtors respond that, although additional financing is required for the
completion of the personal communications system, the effectiveness of
the reorganization plan does not necessarily depend on obtaining such
financing. We agree. Our standard requires only “substantial
consummation,” not absolute or complete consummation. The Debtors’
failure to acquire full financing does not take away from the
transactions that have been completed, see supra note 20. Accordingly,
this argument does not mandate a conclusion that substantial
consummation has not been achieved.
Third, the FCC maintains that, despite the transactions that have
occurred, the contemplation of the return of the licenses to the FCC in
the Litigation Alternative precludes a finding of substantial
consummation. As the Debtors point out, however, no steps have been
taken towards the Litigation Alternative; instead, it has been eschewed
in favor of the Business Alternative with a number of transactions
having been completed in furtherance of the Business Alternative. More
importantly, the reorganization plan’s provision of the Litigation
Alternative bears more upon the effect of allowing the FCC’s appeal to
be considered on third parties, not on whether the reorganization plan,
26
as implemented through the Business Alternative, has been substantially
consummated. Therefore, we agree with the Debtors and the district
court27 that substantial consummation has been achieved; therefore, this
factor weighs in favor of dismissal.
C. Effect on Parties Not Before the Court
The final question in the mootness inquiry involves whether the
requested relief would affect the rights of parties not before the court
or the success of the reorganization plan. See In re Berryman Prods.,
Inc., 159 F.3d at 945-46. As we stated in Manges, “‘[s]ubstantial
consummation of a reorganization plan is a momentous event, but it does
not necessarily make it impossible or inequitable for an appellate court
to grant effective relief.’” In re Manges, 29 F.3d at 1042-43 (quoting
27
On this point, the district court ruled as follows:
“Although the United States agrees that these
transactions have taken place, it does not believe that they
constitute substantial consummation. The court disagrees.
Upon review of the pleadings filed and the appellate record,
the court concludes that the reorganization plan has been
substantially consummated because substantially all of the
property proposed by the plan to be transferred has been
transferred, [the] Debtors are managing substantially all of
the property dealt with by the plan, and distribution under
the plan has commenced. The United States also disputes
substantial consummation because the Litigation Alternative
exists as a part of the confirmed reorganization plan.
Again, the court disagrees. As discussed above, the court
concludes that substantial consummation of the plan, by way
of the Business Alternative, has already taken place
irrespective of the possibility of implementation of the
Litigation Alternative whereby the licenses would be returned
to the FCC, and litigation for the benefit of the creditors
and equity would be initiated to attempt to recover the
payments made by [the] Debtors to the FCC. Accordingly, the
second factor also weighs in favor of dismissal of the appeal
as moot.” GWI PCS 1, Inc., 245 B.R. at 63-64.
27
In re Chateaugay Corp., 10 F.3d 944, 952 (2d Cir. 1993)) (alteration in
original). Here, we must evaluate the transactions that have occurred
under the reorganization plan against the backdrop of the relief sought
by the FCC–reinstatement of the full $954 obligation under the notes and
bid price and the increased risk of revocation of the licenses for
failure to satisfy the increased obligation. Despite the inclusion of
the Litigation Alternative in the reorganization plan, it remains
obvious that saddling the subsidiary debtors with an additional $894
million obligation would have a detrimental affect on the post-
bankruptcy investors and entities and on the success of the Business
Alternative, which was the route preferred by the majority of the
bankruptcy participants in resolving the Debtors’ chapter 11 petition.
In sum, it appears quite unlikely that we could place the Debtors’
estates or the third parties back into the status quo as it existed
before the avoidance judgment if we were to unravel this important and
fundamental aspect of the reorganization plan at this time. Therefore,
we conclude that this factor also weighs heavily in favor of mooting the
FCC’s appeal.28
28
In its consideration of this factor, the district court stated
as follows:
“[T]he court must determine whether the granting of
relief on appeal would affect the rights of third parties not
before the court or the success of the plan. Upon review of
the pleadings filed and the appellate record, the court
concludes that the granting of the relief which the United
States seeks on appeal would affect the rights of third
parties not before the court and the success of the plan.
The various investors and entities which have consummated
transactions with Debtors since the entry of the Confirmation
28
D. Application of Equitable Mootness to the FCC’s Arguments
As all three factors weigh in favor of the district court’s
dismissal of part of the FCC’s appeal, we hold that the district court
properly granted the Debtors’ motion to dismiss. Having concluded that
equitable mootness applies, we now turn to what it applies to. As the
FCC properly concedes that its challenge to the authority of the
bankruptcy court to permit the subsidiary debtors to retain the licenses
and the subsidiary debtors and GWI PCS to avoid $894 million of the
subsidiary debtors’ and GWI PCS’s obligation to pay the full bid price
for the licenses, does not amount to a contention that the bankruptcy
court actually lacked jurisdiction, as such, to enter any portion or
portions of the complained of orders,29 we hold this challenge is
Order, and the confirmation plan itself, would be
detrimentally affected if [the] Debtors were suddenly
obligated to the FCC for an additional $900 million. The
third factor, therefore, weighs in favor of dismissal of the
appeal as moot.” GWI PCS 1, Inc., 245 B.R. at 64.
29
The bankruptcy court’s enjoining the FCC from revoking the
licenses and avoiding the majority of the obligations under the notes
was within its jurisdiction to preserve property of the estate, see 11
U.S.C. § 541, and further the reorganization plan. In addition, 11
U.S.C. § 106 renders the United States and the FCC subject to the
bankruptcy proceedings. Section 106 states as follows:
“(a) Notwithstanding an assertion of sovereign immunity,
sovereign immunity is abrogated as to a governmental unit to
the extent set forth in this section with respect to the
following:
(1) Sections 105, 106, 107, 108, 303, 346, 362,
363, 364, 365, 366, 502, 503, 505, 506, 510, 522, 523,
524, 525, 542, 543, 544, 545, 546, 547, 548, 549, 550,
551, 552, 553, 722, 724, 726, 728, 744, 749, 764, 901,
922, 926, 928, 929, 944, 1107, 1141, 1142, 1143, 1146,
1201, 1203, 1205, 1206, 1227, 1231, 1301, 1303, 1305,
and 1327 of this title.
29
equitably moot. Although the bankruptcy court possibly erred in
permitting avoidance and enjoining the FCC from revoking the subsidiary
debtors’ licenses for failing to remit the full bid price, thereby
(2) The court may hear and determine any issue
arising with respect to the application of such
sections to governmental units.
(3) The court may issue against a governmental
unit an order, process, or judgment under such sections
or the Federal Rules of Bankruptcy Procedure, including
an order or judgment awarding a money recovery, but not
including an award of punitive damages. Such order or
judgment for costs or fees under this title or the
Federal Rules of Bankruptcy Procedure against any
governmental unit shall be consistent with the
provisions and limitations of section 2412(d)(2)(A) of
title 28.
(4) The enforcement of any such order, process, or
judgment against any governmental unit shall be
consistent with appropriate nonbankruptcy law
applicable to such governmental unit and, in the case
of a money judgment against the United States, shall be
paid as if it is a judgment rendered by a district
court of the United States.
(5) Nothing in this section shall create any
substantive claim for relief or cause of action not
otherwise existing under this title, the Federal Rules
of Bankruptcy Procedure, or nonbankruptcy law.
(b) A governmental unit that has filed a proof of claim
in the case is deemed to have waived sovereign immunity with
respect to a claim against such governmental unit that is
property of the estate and that arose out of the same
transaction or occurrence out of which the claim of such
governmental unit arose.
(c) Notwithstanding any assertion of sovereign immunity
by a governmental unit, there shall be offset against a claim
or interest of a governmental unit any claim against such
governmental unit that is property of the estate.” 11 U.S.C.
§ 106.
Moreover, 28 U.S.C. § 1334(b), which provides district courts with
jurisdiction over all civil proceedings arising under title 11, or
arising in or related to cases filed under title 11, “[n]otwithstanding
any Act of Congress that confers exclusive jurisdiction on a court or
courts other than the district courts,” and 28 U.S.C. § 157 grant the
bankruptcy court jurisdiction to consider the Debtors’ avoidance claims.
30
taking onto itself a quasi-regulatory function held by the FCC, the
FCC’s challenge on this point and request that the avoidance judgment,
in its entirety, and the enjoinment order, be reversed are barred by
equitable mootness.
The Second Circuit’s decision, In re NextWave Personal
Communications, Inc., 200 F.3d 43 (2d Cir. 1999) (per curiam), cert.
denied, No. 99-1980 (U.S. Oct. 10, 2000), although casting doubt on the
merits of the bankruptcy court’s assuming a quasi-regulatory role, does
not dissuade us from ruling that the FCC’s challenge on this issue is
equitably moot. NextWave Personal Communications, Inc. (NextWave), like
GWI PCS, was the high bidder for C-block licenses at the FCC’s 1995-96
C-block auction. See id. at 46. Similar to nearly all winning bidders
for C-block licenses, NextWave experienced financial difficulties and
on June 8, 1998 “filed a Chapter 11 petition and instituted an adversary
proceeding against the FCC that sought to avoid the company’s
obligations resulting from its acquisition of the Licenses.” Id. at 48.
The bankruptcy court granted NextWave’s relief in the adversary
proceeding, finding that the transaction in which it had acquired the
licenses was a fraudulent transfer subject to avoidance. See id. at 50.
Accordingly, the bankruptcy court reduced NextWave’s obligation to the
FCC from $4.74 billion to $1.02 billion.30 See id. The Second Circuit
30
As in the present case, the bankruptcy court valued the
licenses as of the date the notes securing NextWave’s obligation were
executed, not on the closing date of the C-block auction. See id. at
49-50. The bankruptcy court also credited NextWave with its $474
million in down-payments, leaving approximately $549 million in payment
31
reversed the bankruptcy court’s avoidance judgment, concluding that the
bankruptcy court improperly “exercised the FCC’s radio-licensing
function.” Id. at 55. In contrast to the present case where the
district court dismissed this claim by the FCC as equitably moot, the
district court in NextWave had “affirmed [the avoidance judgment] for
substantially the reasons stated by the bankruptcy court.“ Id. at 50
(citing In re NextWave Personal Communications, Inc., 241 B.R. 311(S.D.N.Y. 1999)). The district court in NextWave did not find the FCC’s
appeal to be equitably moot, nor did the Second Circuit consider that
issue. In fact, the FCC had successfully obtained a stay in NextWave
and NextWave did not have a confirmed reorganization plan to consummate.
Accordingly, mootness was not at issue. Therefore, although the Second
Circuit’s decision supports the FCC’s substantive merits argument, it
does not prevent the FCC’s challenge on this issue from being equitably
moot.31
The reorganization order, however, preserved certain challenges to
the valuation of the licenses and the amount of a the FCC’s claim
against the Debtors. In light of the results of the March 1999
reauction of C-block licenses, see supra note 18, the remedy now
left to be made to the FCC. See id. at 50.
31
Indeed, if the issue were not equitably moot, we might agree
with the Second Circuit and reverse the bankruptcy court’s avoidance
judgment. However, that is not the case before us, and we need not and
do not decide the matter. We observe that no party has urged before us
the applicability, or otherwise, of 11 U.S.C. § 362(b)(4), or indeed
even cited that section to us.
32
available to the FCC is necessarily limited to an unsecured claim for
any amount the FCC’s claim is determined on appeal to be in excess of
the average winning bid at the March 1999 C-block reauction, see supra
notes 17 and 18. At oral argument, counsel for the Debtors conceded
that the reorganization plan preserved two grounds for the FCC to
appeal: (1) the valuation of the licenses as of January 27, 1997; and
(2) when the subsidiary debtors’ and GWI PCS’s obligation to the FCC
arose. These challenges can not result in the revocation of the
licenses, but rather only in the recoupment of more money by the FCC as
an unsecured claim. We now turn to the FCC’s contention that the
bankruptcy court erred in avoiding $894 million of the subsidiary
debtors’ and GWI PCS’s obligation to the FCC, keeping in mind that the
avoidance judgment cannot now be vacated and the only remedy available
to the FCC is an unsecured claim (payable only out of the $18 million
Unsecured Creditors’ Fund, see notes 17 and 18, supra).
II The Avoidance Judgment
The bankruptcy court avoided approximately $894 million of the
subsidiary debtors’ and GWI PCS’s obligation to the FCC as a
constructive fraudulent transfer under 11 U.S.C. § 548(a)(2) (1996)32.
The elements of a claim of constructive fraud under section 548(a)(2)
are that: (1) the debtor transferred an interest in property; (2) the
transfer of that interest occurred within one year prior to the filing
of the bankruptcy petition; (3) the debtor was insolvent on the date of
32
See note 11, supra.
33
the transfer or became insolvent as a result thereof; and (4) the debtor
received less than reasonably equivalent value in exchange for such
transfer. See In re McConnell, 934 F.2d 662, 664 (5th Cir. 1991); see
also In re XYZ Options, Inc., 154 F.3d 1262, 1275 (11th Cir. 1998);
Butler v. Lomas and Nettleton Co., 862 F.2d 1015, 1017 (3d Cir. 1988);
cf. Burroughs v. Fields, 546 F.2d 215, 218 (7th Cir. 1976) (interpreting
11 U.S.C. § 107, the predecessor to 11 U.S.C. § 548). The FCC does not
appeal the bankruptcy court’s valuation of the licenses as of January
27, 1997, or March 14, 1997, nor does the FCC contend that the
subsidiary debtors or GWI PCS were solvent as of January 27, 1997 or
March 14, 1997. Therefore, any such arguments have been waived.
However, the FCC does contest the bankruptcy court’s decision to choose
January 27, 1997 (or March 14, 1997) as the appropriate date for the
avoidance inquiry. The Debtors bear the burden of establishing the date
the transfer occurred. See In re McConnell, 934 F.2d at 665 n.1; In re
Morris Communications NC, Inc., 914 F.2d 458, 466 (4th Cir. 1990). The
bankruptcy court’s determination on this issue involves a mixed question
of law and fact, which we review de novo (although findings of historic
facts are accepted unless clearly erroneous). See In re Southmark
Corp., 62 F.3d 104, 106 (5th Cir. 1995) (citing Barnhill v. Johnson, 112
S.Ct. 1386, 1389 (1992)).
The date on which the payment obligation arose is crucial to
whether this obligation is avoidable. First, if the subsidiary debtors
and GWI PCS incurred the obligation at the close of the auction, May 8,
34
1996, then the value of the fourteen licenses would be $1.06 billion.
And if the fair market value were $1.06 billion, then the consummation
of the notes would not be a constructive fraudulent transfer. On the
other hand, if their obligation first arose on or about the date on
which the licenses were conditionally granted, January 27, 1997, or on
March 14, 1997, then the $954 million obligation represented by the
notes substantially exceeded the fair market value of the licenses.
Second, if the obligation arose on May 8, 1996, then it would not have
been incurred within one year of the filing of the Debtors’ bankruptcy
petitions and would therefore not have been avoidable. In support of
its position that the obligation arose on the date the C-block auction
closed, the FCC relies on the following: (1) its own interpretation of
its regulations; (2) auction law principles; and (3) the Second
Circuit’s NextWave decision, which relies on (1) and (2). In response,
the subsidiary debtors and GWI PCS assert that the FCC’s interpretation
does not warrant deference and that the bankruptcy court correctly fixed
January 27, 1997 as the appropriate date, because the FCC’s own
regulations provide that the licenses were not transferred and the full
bid price incurred until January 27, 1997. We conclude that the
bankruptcy court did not err in evaluating the transfer as of January
27, 1997.
We first address the FCC’s argument that this Court should defer
to the FCC’s formal interpretation that under its regulations the
binding obligation to pay the full bid price attaches “upon the
35
acceptance of the high bid.” In re Applications for Assignment of
Broadband Personal Communications Servs. Licenses, 14 F.C.C.R. 1126 ¶
1, 1998 WL 889489 (Dec. 23, 1998); see In re C.H. PCS, Inc., 14 F.C.C.R.
4131 ¶ 3, 1999 WL 24950 (Jan. 22, 1999) (“[U]nder the Commission’s
rules, a winning bidder is obligated to pay the full amount of its
winning bid . . ..”). Accordingly, under this interpretation, the
obligation was incurred, in the present case, on May 8, 1996. In
NextWave, the Second Circuit afforded this interpretation considerable
deference in ruling that NextWave’s obligation arose at the close of the
C-block auction, despite NextWave’s contention that the FCC’s status as
a creditor and its self-interest precluded the court’s deferring to the
FCC’s interpretation. See In re NextWave, 200 F.3d at 57 (“Our ruling
is based on the FCC’s interpretation of its own regulations, to which
courts owe deference . . ..”); id. at 59 (“The financial benefits of the
FCC’s post hoc interpretation do not extinguish the courts’ duty to give
deference.”).
We respectfully disagree with the Second Circuit’s conclusion that
courts should defer to the FCC’s interpretation in this matter. The FCC
did not announce its interpretation until December 23, 1998–nearly two
years after C-block licensees began experiencing financial difficulties
and after the Debtors had filed bankruptcy petitions, brought an
adversary proceeding against the FCC, and obtained a judgment in the
36
adversary proceeding on June 4, 1998.33 Moreover, in a separate
statement issued with the December 23, 1998 order, FCC Chairman William
Kennard wrote that “some of the[] issues [addressed in this order] only
emerge[d] as a result of the lessons learned during litigation.” In re
Applications for Assignment of Broadband Personal Communications Servs.
Licenses, Statement of Chairman William Kennard, 14 F.C.C.R. 1126, 1998
WL 889489 (Dec. 23, 1998). In fact, paragraph one of the December 23,
1998 order, which contains the interpretation the FCC argues that this
Court should defer to, states that the newly adopted procedures for
transferring licenses “was made in light of a recent bankruptcy court
decision and arguments raised in other pending bankruptcy proceedings.”
Id. ¶ 1 (footnote omitted). This bankruptcy decision and proceedings,
as noted in the margin of the order, were those of the lower courts in
this dispute between the Debtors and the FCC. See id. ¶ 1 n.3
(containing the following citation: “See, e.g., In re GWI PCS 1, Inc.,
et al., Case Nos. 39739676 through 39739689 (Bankr. N.D. Tex.); GWI PCS
1, Inc. v. FCC, Adv. No. 397-3492 (Bankr. N.D. Tex.) (appeal pending)”).
In circumstances such as these, where an agency’s interpretation occurs
at such a time and in such as manner as to provide a convenient
litigation position for the agency, we have declined to defer to the
interpretation. See Waste Control Specialists v. United States Dept.
33
The present litigation was not the only one pending in December
1998 that raised the issue of avoidance; for example, NextWave filed its
chapter 11 petition and instituted its adversary proceeding against the
FCC on June 8, 1998. See In re NextWave, 200 F.3d at 48.
37
of Energy, 141 F.3d 564, 567 (5th Cir. 1998) (“We will not give
deference to [the Department of Energy]’s interpretation . . ., because
it had not enunciated its interpretation prior to the litigation.”)
(footnote and citations omitted); United States v. Food, 2,998 Cases,
64 F.3d 984, 987 n.5 (5th Cir. 1995) (“Because it appears that the FDA
interpreted § 334 and § 381 at such a time and in such a manner so as
to provide a convenient litigation position for this suit, we disagree
and conclude that the FDA’s position is not controlling.”) (citation
omitted); Irving Indep. Sch. Dist. v. Packard Properties, 970 F.2d 58,
64 (5th Cir. 1992) (“Discounting the FDIC interpretation is appropriate
for another important reason. The FDIC’s Legal Memorandum was issued
during pending litigation.”); see also Bowen v. Georgetown Univ. Hosp.,
109 S.Ct. 468, 474 (1988) (“Deference to what appears to be nothing more
than an agency’s convenient litigating position would be entirely
inappropriate.”); Nordell v. Heckler, 749 F.2d 47, 48 (D.C. Cir. 1984)
(“To carry much weight, however, the [agency] interpretation must be
publicly articulated some time prior to the agency’s embroilment in
litigation over the disputed provision.”). Accordingly, we do not
afford the FCC’s December 1998 interpretation deference in determining
the appropriate date on which the subsidiary debtors’ and GWI PCS’s
obligation to the FCC arose.
We now consider the FCC’s argument that auction law supports its
position that the transfer must be evaluated at the date the C-block
auction closed–May 8, 1996. General principles of auction law provide
38
a baseline rule that the close of an auction–the fall of the
hammer–signals acceptance of the offer and creates a binding contract
between the seller and the high bidder. See Blossom v. Railroad Co.,
70 U.S. (3 Wall.) 196, 206 (1865) (“[A]s soon as the hammer is struck
down . . . the bargain is considered as concluded, and the seller has
no right afterwards to accept a higher bid nor the buyer to withdraw
from the contract.”) (footnote and citations omitted); Lawrence Paper
Co. v. Rosen & Co., 939 F.2d 376, 378-79 (6th Cir. 1991) (“‘The contract
becomes complete only when the bid is accepted, this being ordinarily
denoted by the fall of a hammer.’”) (quoting 7 AM. JUR. 2D Auctions &
Auctioneers § 16 (1980 & Supp. 1991)); Bottorff v. Ault, 374 F.2d 832,
835 (7th Cir. 1967) (“The sales here were at auction. They were
completed when the hammer fell or when the auctioneer said ‘sold.’”)
(citation omitted); United States v. Conrad, 619 F. Supp. 1319, 1321
(M.D. Fla. 1985) (“It has long been settled that a bid constitutes an
offer and the fall of the hammer signifies acceptance.”). This
postulate of auction law, however, merely provides a baseline, which,
in the context of the FCC’s auction of the electromagnetic spectrum, has
been modified by the FCC’s regulations. In NextWave, the Second Circuit
agreed with the FCC’s interpretation of the bidding regulations,
concluding that at the close of a C-block auction a winning bidder
“became obligated, if qualified, to pay the . . . bid price or, if
unqualified, to pay a prescribed penalty.” In re NextWave, 200 F.3d at
58. The Second Circuit then reasoned that, “[b]y making the high bid,
39
NextWave (a) assumed an obligation to pay a down-payment promptly, (b)
assumed an obligation to pay in the future the amount of its bid upon
receipt of the Licenses and (c) assumed the risk that it might prove
unqualified, by binding itself in that event to pay the amount of any
shortfall in a re-auction of the same Licenses.” Id. at 61. Thus, the
Second Circuit determined that NextWave became obligated to pay the FCC
the full bid price at the close of the auction. We respectfully
disagree with the Second Circuit’s conclusion in this respect.
Neither the FCA nor FCC regulations states that the high bidder for
a C-block license becomes obligated for the full amount of the bid at
the close of the auction. Instead, 47 C.F.R. § 24.704 provides as
follows:
“(a) When the Commission conducts a simultaneous
multiple round auction pursuant to § 24.702(a)(1), the
Commission will impose penalties on bidders who withdraw high
bids during the course of an auction, who default on payments
due after an auction closes, or who are disqualified.
(1) Bid withdrawal prior to close of auction. A bidder
who withdraws a high bid during the course of an auction will
be subject to a penalty equal to the difference between the
amount bid and the amount of the winning bid the next time
the license is offered by the Commission. No withdrawal
penalty would be assessed if the subsequent winning bid
exceeds the withdrawn bid. This penalty amount will be
deducted from any upfront payments or down payments that the
withdrawing bidder was [sic] deposited with the Commission.
(2) Default or disqualification after close of auction.
If a high bidder defaults or is disqualified after the close
of such an auction, the defaulting bidder will be subject to
the penalty in paragraph (a)(1) of this section plus an
additional penalty equal to three (3) percent of the
subsequent winning bid. If the subsequent winning bid
exceeds the defaulting bidder’s bid amount, the 3 percent
penalty will be calculated based on the defaulting bidder’s
bid amount. These amounts will be deducted from any upfront
payments or down payments that the defaulting or disqualified
40
bidder has deposited with the Commission.” 47 C.F.R. §
24.704(a) (1995).34
This penalty provision does not obligate the winning bidder to pay the
full amount of the bid. Accordingly, by making the winning bids on the
fourteen licenses, GWI PCS only obligated itself to pay a penalty in the
event of default or disqualification, not the full amount of the winning
bids.35 There has been no default respecting the fourteen licenses for
34
This regulation governing the auction of the electromagnetic
spectrum comports with the FCC’s general competitive bidding procedures
contained in 47 C.F.R. §§ 1.2104(g) & 1.2109(c) (1995).
35
The FCC’s treatment of a defaulting entity further supports
this conclusion. See In re BDPCS, Inc., 11 F.C.C.R. 14,399, 1996 WL
625565 (Oct. 25, 1996). BDPCS was a high bidder for seventeen C-block
licenses, but “fail[ed] to remit the required down payment on the
licenses for which it was the successful high bidder.” Id. ¶ 1. On May
30, 1996, the FCC publicly announced that BDPCS had defaulted on the
seventeen licenses and that these licenses would be reauctioned in July
1996. See id. ¶ 4. With regard to BDPCS’s obligation to the FCC, the
October 25, 1996 order states as follows:
“A defaulting bidder is subject to certain default payment
obligations. Specifically, such bidder is required to pay
the difference between the amount bid and the amount of the
winning bid the next time the license is offered by the
Commission (so long as the subsequent winning bid is less
than the amount bid), plus an additional payment equal to
three percent of the defaulter’s bid or the subsequent
winning bid, whichever is less. In the event that a license
is reauctioned for amount greater than or equal to the
defaulted bid, the total default payment is equal to three
percent of the defaulted bid. In the event that the default
payment cannot be determined (i.e, because a license has not
yet been reauctioned), the Commission has indicated that a
deposit may be assessed of up to 20 percent of the defaulted
bid price. Finally, the Commission’s payment rules provide
that if a defaulting bidder does not submit the default
payment assessed by the Commission in the time required, any
amounts overdue ‘will be deducted from any upfront payments
or down payments that the defaulting or disqualified bidder
has deposited with the Commission.” Id. ¶ 5 (footnotes
omitted).
41
which GWI PCS was the high bidder. No penalty therefore has been
assessed or can be calculated.36
After the close of the auction on May 8, 1996, GWI PCS was merely
entitled to apply for the licenses. To be sure, GWI PCS held a
contingent right to the fourteen licenses; however, the FCC’s January
27, 1997 order makes clear that the transfer of the licenses was not
complete until the execution of the notes and the payment of the
remaining portion of the down-payment. See Wireless Telecommunications
Bureau Announces Grant of Broadband Personal Communications Services
Entrepreneurs’ C Block Licenses to GWI PCS Inc., 12 F.C.C.R. 1215, 1997
WL 28957 (Jan. 27, 1997) (“GWI PCS will receive its individual BTA
licenses following payment for each license of the final down payment
and execution and return of the note and security agreement.”); id.(“[T]he Bureau . . . granted GWI PCS’s applications, conditioned on
timely payment of its remaining down payment obligation.”).37 GWI PCS’s
applications remained subject to objection by the public (and in fact
were objected to) and could have been rejected by the FCC–a decision
affording the FCC some level of discretion. See 47 C.F.R. § 24.832(a)
Notably, this order does not state that BDPCS is, or was ever, obligated
to the FCC for the full amount of its bid price.
36
In fact, the subsidiary debtors assert that, since the bankruptcy
court confirmed the reorganization plan, they have made over $9 million
in installment payments to the FCC under the modified obligation to the
FCC–a contention the FCC does not dispute.
37
In addition, interest on the bid amount did not begin to accrue
until the conditional granting of the licenses. See 47 C.F.R. §
24.711(b)(1) (1995); 47 C.F.R. § 1.2110(e)(3)(i) (1995).
42
(1995) (“Applications for an instrument of authorization will be granted
if, upon examination of the application and upon consideration of such
other matters as it may officially notice, the Commission finds that the
grant will serve the public interest, convenience and necessity.”)
(emphasis added); 47 C.F.R. § 24.804(a) (1995) (“Authorizations will be
granted upon proper application if: (1) The applicant is qualified under
all applicable laws and Commission regulations, policies and decisions;
(2) There are frequencies available to provide satisfactory service; and
(3) The public interest, convenience or necessity would be served by a
grant.”) (emphasis added); see also 47 C.F.R. § 1.2108(d)(1) (1995) (“If
the Commission determines that: (1) an applicant is qualified and there
is no substantial and material issue of fact concerning that
determination, it will grant the application.”); In re Implementation
of Section 309(j) of the Communications Act–Competitive Bidding, Fifth
Report and Order, 9 F.C.C.R. 5532 ¶ 81, 1994 WL 372170 (July 15, 1994)
(“If the Commission denies all petitions to deny, and is otherwise
satisfied that the applicant is qualified, the license(s) will be
granted to the auction winner.”).38 In addition, it is undisputed that
38
The FCC also has the authority to amend the terms for awarding
a license after an application for the license has been filed. See
PLMRS Narrowband Corp v. FCC, 182 F.3d 995, 1000-01 (D.C. Cir. 1999)
(concluding that the FCC’s decision to auction licenses and return all
pending applications, which had been submitted when the licenses were
awarded by a lottery system, was not arbitrary and capricious); Mobile
Communications Corp. of Am. v. FCC, 77 F.3d 1399, 1402-03 (D.C. Cir.
1995) (upholding the FCC’s authority to impose a payment requirement for
a license, where the potential licensee applied for the license before
the FCC required any payment).
43
while the applications were pending, GWI PCS could not and did not use
the licenses. See 47 C.F.R. § 24.803 (1995) (“No person shall use or
operate any device for the transmission of energy or communications by
radio in the services authorized by this part except as provided in this
part.”). Only after the applications were approved and the promissory
notes had been signed, could the fruits of the licenses be utilized.39
39
The FCC regulations, however, do provide for the temporary use
of a license with FCC permission. 47 C.F.R. § 24.825 provides as
follows:
“(a) In circumstances requiring immediate or temporary
use of facilities, request may be made for special temporary
authority to install and/or operate new or modified
equipment. Any such request may be submitted as an informal
application in the manner set forth in § 24.805 and must
contain full particulars as to the proposed operation
including all facts sufficient to justify the temporary
authority sought and the public interest therein. No such
request will be considered unless the request is received by
the Commission at least 10 days prior to the date of proposed
construction or operation or, where an extension is sought,
at least 10 days prior to the expiration date of the existing
temporary authorization. The Commission may accept a
late-filed request upon due showing of sufficient reasons for
the delay in submitting such request.
(b) Special temporary authorizations may be granted
without regard to the 30- day public notice requirements of
§ 24.827(b) when:
(1) The authorization is for a period not to
exceed 30 days and no application for regular operation
is contemplated to be filed;
(2) The authorization is for a period not to
exceed 60 days pending the filing of an application for
such regular operation;
(3) The authorization is to permit interim
operation to facilitate completion of authorized
construction or to provide substantially the same
service as previously authorized; or
(4) The authorization is made upon a finding that
there are extraordinary circumstances requiring
operation in the public interest and that delay in the
institution of such service would seriously prejudice
44
Accordingly, the C-block auction was not a typical auction. Under the
C-block auction rules, the winning bidder is not entitled to the license
until after receiving subsequent FCC approval and does not become
obligated for the full bid price until the notes securing the full bid
price are thereafter signed.
The transfer of subsidiary debtors’ fourteen licenses and the
concurrent obligation to pay the remaining bid price, $954 million, did
not arise until the subsidiary debtors executed the promissory notes for
the remainder of the bid price on January 27, 1996. See In re Southmark
the public interest.
(c) Temporary authorizations of operation not to exceed
180 days may be granted under the standards of Section 309(f)
of the Communications Act where extraordinary circumstances
so require. Extensions of the temporary authorization for a
period of 180 days each may also be granted, but the
applicant bears a heavy burden to show that extraordinary
circumstances warrant such an extension.
(d) In cases of emergency found by the Commission,
involving danger to life or property or due to damage of
equipment, or during a national emergency proclaimed by the
president or declared by the Congress or during the
continuance of any war in which the United States is engaged
and when such action is necessary for the national defense
or safety or otherwise in furtherance of the war effort, or
in cases of emergency where the Commission finds that it
would not be feasible to secure renewal applications from
existing licensees or otherwise to follow normal licensing
procedure, the Commission will grant radio station
authorizations and station licenses, or modifications or
renewals thereof, during the emergency found by the
Commission or during the continuance of any such national
emergency or war, as special temporary licenses, only for the
period of emergency or war requiring such action, without the
filing of formal applications.” 47 C.F.R. § 24.825 (1995).
We hold that the possibility of an FCC temporary grant of use of the
license does not render the grant of a license to a high bidder
unconditional.
45
Corp., 62 F.3d at 106 (“A debtor incurs a debt when he becomes legally
obligated to pay it.”) (citing Sherman v. First City Bank (In re United
Sciences of Am.), 893 F.2d 720, 724 (5th Cir. 1990); In re Emerald Oil
Co., 695 F.2d 833, 837 (5th Cir. 1983)). Therefore, we conclude that
the bankruptcy court properly determined January 27, 1997 as the
appropriate date to evaluate the avoidance motion. With respect to this
issue, the FCC’s challenge fails, and we affirm the avoidance of the
approximately $894 million of the obligation of the subsidiary debtors
(and of any such obligation of GWI PCS) to the FCC.
Conclusion
For the reasons stated, the judgment of the district court is
AFFIRMED.
46