Tracy Broadcasting Corporation v. Spectrum Scan, LLCTracy Broadcasting Corporation v. Spectrum Scan, LLC
For the foregoing reasons, we AFFIRM the district court‘s grant of summary judgment and award of attorney‘s fees.
In re TRACY BROADCASTING CORPORATION, Debtor,
Valley Bank and Trust Company, Appellant,
v.
Spectrum Scan, LLC; Joli A. Lofstedt, Chapter 11 Trustee, Appellees.
No. 11-1453.
United States Court of Appeals, Tenth Circuit.
Oct. 16, 2012.
Christian Onsager, Onsager, Staelin & Guyerson LLC, Denver, CO, (J. Brian Fletcher, Andrew D. Johnson, Onsager, Staelin & Guyerson LLC; John H. Bernstein, Jeremy D. Peck, Kutak Rock LLP, Denver, CO, and David M. Cantor, Seiller Waterman LLC, Louisville, KY, with him on the brief), for Appellees.
Before MURPHY, HARTZ, and TYMKOVICH, Circuit Judges.
HARTZ, Circuit Judge.
Does a creditor with a security interest in the general intangibles (and their proceeds) of a federally licensed broadcasting company have a priority over unsecured creditors in the proceeds of the sale of the license after the company declares bankruptcy? The bankruptcy court and the district court held that it did not. We respectfully disagree. Federal law permits a licensee to grant a security interest in the economic value of its license, and Nebraska law recognizes that a security interest in the proceeds of a license sale attaches when the licensee enters into the security agreement, regardless of whether a sale is contemplated at that time.
I. BACKGROUND
Tracy Broadcasting is a Nebraska corporation that operated an FM radio station in Wyoming under a license issued by the Federal Communications Commission (FCC). On May 5, 2008, Tracy Broadcasting executed a promissory note for a $1,596,100 loan from Valley Bank & Trust Company (Valley Bank). The note was secured by an agreement dated December 13, 2007, which granted Valley Bank a security interest in various assets, including Tracy Broadcasting‘s general intangibles and their proceeds.
On January 23, 2009, Spectrum Scan, LLC obtained a judgment in Nebraska federal court against Tracy Broadcasting in the amount of $1,400,000. Seven months later, Tracy Broadcasting filed a petition under Chapter 11 in Colorado bankruptcy court. It listed assets of $1,223,242.00 and liabilities of $3,045,417.60. The two primary creditors of Tracy Broadcasting were Valley Bank and Spectrum Scan, which was unsecured. The most valuable asset listed was the broadcasting license, with an estimated worth of $950,000. The schedules state that the “proceeds” of the license are “secured to Valley Bank.” Aplt. App. at 23. No agreement for sale or transfer of the license was pending at the time (nor does it appear that it was transferred before the bankruptcy court‘s decision in this case).
Spectrum Scan brought an adversary action to determine the extent of Valley Bank‘s security interest. The bankruptcy court ruled that Valley Bank had no priority in the proceeds of the sale of Tracy Broadcasting‘s license. The United States District Court for the District of Colorado affirmed.
Under the Bankruptcy Code, property acquired by Tracy Broadcasting after it filed for bankruptcy (such as proceeds of the sale of its FCC license) would not be subject to Valley Bank‘s lien unless the property was proceeds of property acquired by Tracy Broadcasting before filing and the security agreement “extend[ed] to [the] property ... acquired before [filing] and to proceeds ... of such property.”
II. DISCUSSION
Although the appeal before us is from a judgment of the district court, that court acted as an appellate court and our review amounts to review of the bankruptcy court‘s decision. See Sovereign Bank v. Hepner (In re Roser), 613 F.3d 1240, 1243 (10th Cir.2010). “Because this case presents no disputed factual issues but only matters of law, our review is de novo.” Id.
Our analysis proceeds in two steps. First, we must determine what, if any, interest Tracy Broadcasting could convey in its broadcast license before it filed its bankruptcy petition. We conclude that despite the FCA restrictions on license transfers, Tracy Broadcasting could grant a security interest in its right to the proceeds of the sale of the license. We then must determine whether such a security interest is a property interest that can attach before a sale of the license is contemplated.1 Under the Bankruptcy Code, property-rights issues of this sort are ordinarily a matter of state law. See Travelers Cas. & Sur. Co. of Am. v. Pacific Gas & Elec. Co., 549 U.S. 443, 450-51, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) (“[W]e have long recognized that the basic federal rule in bankruptcy is that state law governs the substance of claims, Congress having generally left the determination of property rights in assets of a bankrupt‘s estate to state law.” (internal quotation marks omitted)); Miller v. Deutsche Bank Nat‘l Trust Co. (In re Miller), 666 F.3d 1255, 1262 (10th Cir.2012) (state law determines whether a party has a “right to payment” under the Bankruptcy Code because “within the context of a bankruptcy proceeding, state law governs the determination of property rights” (brackets and internal
A. Private Interests in Broadcast Licenses
Section 301 of the FCA “provide[s] for the use of [radio] channels, but not the ownership thereof, by persons for limited periods of time, under licenses granted by Federal authority.”
No station license shall be granted by the Commission until the applicant therefor shall have waived any claim to the use of any particular frequency or of the electromagnetic spectrum as against the regulatory power of the United States because of the previous use of the same, whether by license or otherwise.
Of particular relevance,
No ... license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.
We begin our analysis by reviewing the FCC‘s view of what these provisions, and the purposes of the FCA as a whole, say about the rights of license holders to grant security interests. We will then defer to that interpretation under the doctrine of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
The FCC has consistently declared that a licensee cannot give a private party a lien on its license that would enable the lienholder to foreclose on the lien and obtain the licensee‘s rights without FCC approval. See In re Walter O Cheskey, 9 FCC Rcd. 986, 987 para. 8 (Mobile Servs. Div.1994) (“The Commission has a policy against a licensee giving a security interest in a license. The reason for the policy is that the Commission‘s statutory mandate requires it to approve the qualifications of every applicant for a license.
[G]iving a security interest in the proceeds of the sale of a license does not raise the same concerns [as granting a lien that would allow the lienholder to obtain the license upon the debtor‘s default without FCC approval]. When a
licensee gives a security interest in the proceeds of the sale of the system, including the license, the licensee‘s creditor has rights with respect to the money or other assets the licensee receives in exchange for the system and license. The creditor has no rights over the license itself, nor can it take any action under its security interest until there has been a transfer which yields proceeds subject to the security interest. Thus, when the creditor exercises his security interest, the licensee will no longer be holding the license.
In re Walter O Cheskey, 9 FCC Rcd. at 987 paras. 8, 9 (citations omitted). The FCC has emphasized that permitting such security interests will improve licensees’ access to capital. See Facilitating the Provision of Spectrum-Based Services, 69 Fed. Reg. 75,144, 75,151 (Dec. 15, 2004) (codified at 47 C.F.R. pts. 1, 22, 24, 27 & 90). As for the prohibition on granting a security interest in the license itself, the FCC has “not yet taken a position on whether its policy ... is statutorily mandated or solely dictated by regulatory policy.” Id. (internal quotation marks omitted).
Courts and commentators have referred to the licensee‘s present interest in the right to the proceeds of a future sale of the license as a private right or interest, or an economic right. See MLQ Investors, L.P. v. Pac. Quadracasting, Inc., 146 F.3d 746, 749 (9th Cir.1998); In re Ridgely Commc‘ns, Inc., 139 B.R. 374, 379 (Bankr.D.Md.1992); David Isenberg & Michael Reisz, Toward a Compromise on Collateralizing Loans to Broadcasters, 45 Fed. Comm. L.J. 541, 546, 557 (1993). These terms are appropriate because they contrast the right of the licensee to make money on a license (or at least recoup all or part of the licensee‘s investment in the license) with what the government controls—the use of the electromagnetic-wave spectrum. Under
It is important to understand precisely what rights are recognized by the FCC‘s policy. The FCC recognizes that one of the rights acquired by a licensee when it obtains a license is the right to receive money from a future transferee of the license. This right has value upon acquisition of the license, regardless of whether a prospective purchaser is in sight. And the FCC permits the licensee to grant a security interest in that right. Although the FCC speaks in terms of a
The Ninth Circuit recognized the nature of the security interest when it rejected a claim that tax liens took priority over a security interest with respect to the proceeds of the sale of an FCC license. Although we might have preferred a different nomenclature in describing the security interest, the court‘s analysis is clear. It wrote:
[It is argued] that even if MLQ had a security interest in the proceeds from the sale of the licenses, this interest did not arise, and therefore could not be perfected, until the licenses were sold. As a result, MLQ‘s security interest was junior to the IRS tax liens created prior to the sale of the licenses. We disagree. Government licenses, as a general rule, are considered to be “general intangibles” under the Uniform Commercial Code, “i.e., personal property interests in which security interests may be perfected.” In re Ridgely [Commc‘ns, Inc.], 139 B.R. [374,] 379 [ (Bankr.D.Md. 1992) ].... In re Ridgely makes it clear that license holders have no property rights in the “actual broadcast frequencies themselves as against the federal government,” 139 B.R. at 376, (citing In re Bill Welch, 3 F.C.C.R. 6502 (1988)). However, In re Ridgely and In re Cheskey stand for the proposition that licensees do have a proprietary right in the proceeds from a sale of a license, and may grant a security interest in those proceeds. See also In re Beach Television Partners, 38 F.3d 535, 537 (11th Cir.1994) (holding that a creditor has a valid security interest in the proceeds of an FCC-approved sale of a broadcast license).
Since the licensee has rights and interests in the license proceeds which include a limited right to pledge those proceeds as collateral, we see no reason why the proceeds should not be considered “general intangibles,” therefore subject to perfection prior to sale. Indeed, a contrary outcome would mean that the distinction between private and public interests in FCC license proceeds, outlined in In re Ridgely and In re Cheskey, would have no meaning, and the private interests would be devoid of value. A security interest in proceeds that could not be perfected until after foreclosure and sale of the license would, in almost every circumstance, be primed by IRS liens and claims of other creditors. The fact that in the present case the actual dollar proceeds from the sale of the licenses were generated only after the sale—and thus after the tax
lien filing, as well—is immaterial. “[N]early all forms of security must be reduced to cash before they pay off the debt secured thereby.” See Peter F. Coogan, Tax Liens and the UCC, 81 Harv.L.Rev. 1369, 1385 (1968).
MLQ Investors, 146 F.3d at 746, 749 (emphasis added) (footnote omitted); see Sprint Nextel Corp. v. U.S. Bank Nat‘l Ass‘n (In re TerreStar Networks, Inc.), 457 B.R. 254, 261-70 (Bankr.S.D.N.Y.2011) (similar); id. at 264 (collecting cases). The FCC cited MLQ Investors with approval in In re Gresham Commc‘ns, 26 FCC Rcd. 11895, 11900 & n. 36 (2011).
As Spectrum Scan argues, however, the FCC is not the last word on whether liens are permitted under the FCA. The FCC cannot override a statutory mandate. Spectrum Scan asserts that the FCA unambiguously prohibits liens that can attach before sale of a license and that therefore this court should not grant Chevron deference to FCC policy on this matter. See Chevron, 467 U.S. at 842-44 (court should grant deference to agency in construing ambiguous language of statute administered by agency).
Spectrum Scan asserts that
Under the plain language of
§§ 301 and310 , a ‘private right’ cannot [exist in] an FCC license because a license confers no ownership and the holder of an FCC license has no authority to unilaterally (i.e., without the FCC‘s prior approval) transfer, assign, or dispose of it either directly or indirectly.
Id. at 9.
We disagree. We would likely interpret the FCA to support the FCC‘s position allowing liens on the right to the proceeds of license sales. But in any event, insofar as the FCA is ambiguous, the FCC‘s determination that the Act permits liens on the licensee‘s right to the proceeds of a license sale is not an unreasonable construction of the Act. To begin with,
The point was explained by the FCC in its 1988 opinion in In re Welch, 3 FCC Rcd. 6502, which held that the for-profit transfer of a construction permit (which is subject to the same restrictions in
If there were a statutory limitation on the ability of a permittee to transfer its construction permit for profit, it would logically fit in this section of the [FCA]. But Section 310(d) contains no such restriction. It requires that all transfers and assignments are simply to be judged by this Commission under the general public interest, convenience and necessity test. The fact that the Commission is required to undertake such review, and that no permit can be assigned or transferred prior to Commission approval, ensures that the Federal Government retains control over use of the spectrum, consistent with Sections 301 and 304.
Id. at 6504. A footnote in the opinion stated:
The distinction between rights between private parties and the Commission and rights between only private parties is a critical one: “The jural relationships that attach from the relationship between transferor and transferee must be distinguished and differentiated from those in relationship to the regulatory authority. There is a qualitative difference in the rights and obligations which an assignor asserts against the assignee as compared to the assertion of rights by transferor and transferee against the Commission‘s regulatory powers.” H. Warner, Radio and Television Law at 828 (1948).
Id. at 6503 n. 28. In our view, it is reasonable to construe
In sum, we hold that the holder of an FCC license has the right to the proceeds of a sale of that license and may grant a security interest in that right and in the proceeds of that right (that is, the proceeds of a future sale). Arriving at that holding does not, however, end our task in this case. There remains the question whether Nebraska law permits a security
B. Property Rights Under Nebraska Law
The bankruptcy court “presumed” that “it is possible to grant a security interest in the ability to receive value upon an FCC-approved sale of a broadcast license.” Order at 7 (Aplt. App. at 327). Nevertheless, it rejected Valley Bank‘s claim to a priority in the postpetition proceeds of a sale of the license. It based its decision on Bankruptcy Code
[I]f the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property of the debtor acquired before the commencement of the case and to proceeds ... of such property, then such security interest extends to such proceeds.
(emphasis added). But it held the exception inapplicable because, it said, Tracy Broadcasting‘s interest in the proceeds of the future sale of the license was too speculative to constitute property before Tracy Broadcasting filed for bankruptcy. The issue, in the court‘s view, was whether [Tracy Broadcasting‘s] ability to receive value, contingent both on the existence of an agreement to transfer the License and upon the FCC‘s approval of that transfer, where there was in fact no agreement of any kind for transfer of the License prior to the filing of the Bankruptcy Case, was “property of the debtor acquired before the commencement of the case.” Order at 7 (Aplt. App. at 327). It then restated the question as, “[D]id [Tracy Broadcasting] have sufficient ‘rights in the collateral or the power to transfer rights in the collateral to a secured party,’ such as would be necessary for any security interest to attach under § 9-203 of the U.C.C., prior to filing its Chapter 11 case?” Id. at 8 (Aplt. App. at 328). It answered its question no, reasoning that “[Tracy Broadcasting‘s] right to receive value for transfer of its License did not exist prior to the filing of its Chapter 11 case because any such ‘right’ was too remote and was subject to two contingencies“: an agreement to transfer the license, and approval of the transfer by the FCC. Id.
We respectfully disagree with the bankruptcy court‘s analysis. Whether Tracy Broadcasting had sufficient rights in the collateral to support the attachment of a security interest in those rights is a question of Nebraska property law. The leading decision on what law governs is the Supreme Court‘s opinion in Butner v. United States, 440 U.S. 48, 49, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). The dispute in that case was whether it was the bankruptcy trustee or a second mortgagee who had the right to collect rents from the time the mortgagor declared bankruptcy until the foreclosure sale. The question before the Supreme Court was whether the answer was “determined by a federal rule of equity or by the law of the State where the property is located.” Id. at 49. The Court held that state law applies. It wrote:
Property interests are created and defined by state law. Unless some federal
interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serve to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving a windfall merely by reason of the happenstance of bankruptcy. The justifications for application of state law are not limited to ownership interests; they apply with equal force to security interests, including the interest of a mortgagee in rents earned by mortgaged property.
Id. at 55 (citation and internal quotation marks omitted). “[T]he federal bankruptcy court,” it concluded, “should take whatever steps are necessary to ensure that the mortgagee is afforded in federal bankruptcy court the same protection he would have under state law if no bankruptcy had ensued.” Id. at 56 (emphasis added). Although Butner was decided before enactment of the present Bankruptcy Code, the underlying principle—that state law governs the recognition of property interests in bankruptcy proceedings, unless a federal interest (such as one expressed in a particular provision of the Bankruptcy Code) requires otherwise—still applies. See Travelers Cas. & Sur. Co., 549 U.S. at 450-51. Thus, to determine whether Valley Bank had a property interest (an interest in the right to proceeds of a future sale of Tracy Broadcasting‘s license) that attached upon execution of the security agreement, we look to Nebraska law.
In our view, Nebraska law recognizes the attachment of an interest in the right to proceeds of a sale of an FCC license when the licensee enters into a security agreement.2 There can be no dispute that if a licensee‘s right to the proceeds of a sale of a license is a property interest, it is a general intangible under Nebraska law. See
Our conclusion is strongly buttressed by a 2000 revision to the Nebraska U.C.C. specifically designed to recognize and enforce such security interests. As we shall explain below, that revision, codified as
The pertinent language is as follows:
(c) A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
By making available previously unavailable property as collateral, this section should enable debtors to obtain additional credit. For purposes of determining whether to extend credit, under some circumstances a secured party may ascribe value to the collateral to which its security interest has attached, even if this section precludes the secured party from enforcing the security interest.... This is precisely the same purpose underlying the FCC decision to allow security interests in the proceeds of a license sale. See In re Amend. of Part 1 of the Comm‘ns Rules-Competitive Bidding Proceeding, 12 FCC Rcd. 5686, 5695 para. 12 (1997) (“[The FCC] understand[s] that it is customary in commercial financing to grant lenders security interests in the proceeds of the sale of FCC licenses and [it does] not intend[] to impede or adversely affect a licensee‘s ability to obtain bank or other financing. Accordingly, debtors may grant to other parties a subordinated security interest in the proceeds of an authorized assignment or transfer of the license to a third party, provided however that any such security interest shall be subordinated to and in no way inconsistent with the Commission‘s security interest in the license.“).
Comment 7 to
This section could have a substantial effect if the assignor enters bankruptcy. Roughly speaking, Bankruptcy Code section 552 invalidates security interests in property acquired after a bankruptcy petition is filed, except to the extent that the postpetition property constitutes proceeds of prepetition collateral.
A debtor is the owner of a cable television franchise that, under applicable law, cannot be assigned without the consent of the municipal franchisor. A lender wishes to extend credit to the debtor, provided that the credit is secured by the debtor‘s “going business” value. To secure the loan, the debtor grants a security interest in all its existing and after-acquired property. The franchise represents the principal value of the business. The municipality refuses to consent to any assignment for collateral purposes. If other law were given effect, [4] the security interest in the franchise would not attach; and if the debtor were to enter bankruptcy and sell the business, the secured party would receive but a fraction of the business‘s value. Under this section, however, the security interest would attach to the franchise. As a result, the security interest would attach to the proceeds of any sale of the franchise while a bankruptcy is pending. However, this section would protect the interests of the municipality by preventing the secured party from enforcing its security interest to the detriment of the municipality.
Numerous cases have arisen in the context of FCC broadcast licenses. Early cases took the view that in light of the FCC‘s anti-assignment policy, no security interest could be created in such a license. As a result, even if the license were assigned to a new owner with the FCC‘s permission, the lender would have no security interest in the proceeds generated by the assignment. In 1994, the FCC modified its position to clarify that no security interest could be created in a license because that might interfere with the FCC‘s ability to regulate the licensee. However, a security interest could be created in the proceeds of the assignment of a license to an FCC-approved third party because the security interest in the proceeds did not interfere with FCC regulation of the licensee.
[The U.C.C.‘s] treatment of security interests in non-assignable intangibles is similar to the current treatment of FCC licenses. The revision distinguishes between non-economic rights and the payment rights and proceeds that might be generated by the intangible asset. The basic policy of free assignability is tempered to the extent necessary to protect the other party to the contract, franchise, license, etc., from most adverse effects arising from the granting of a security interest.
G. Ray Warner, The Anti-Bankruptcy Act: Revised Article 9 and Bankruptcy, 9 Am. Bankr. Inst. L. Rev. 3, 49 (2001) (footnote omitted). See generally Alvin C. Harrell, The Relationship Between Revised Uniform Commercial Code Article 9 and the Bankruptcy Code: Points of Intersection and Conflict, 28 Okla. City U.L. Rev. 511, 528-30 (2003) (stating that revisions to Article 9 reflected a strong policy favoring assignability of intangible property interests).
We find it particularly noteworthy that nothing in the text of
One might argue that
Section 9-408 reaches the same result, but reaches it from the opposite direction; it begins with a lien on the license but then pares back the security interest so that it resembles the security interest permitted by the FCC. Although
Also, in relying on
III. CONCLUSION
We REVERSE the judgment of the district court with directions to REMAND this matter to the bankruptcy court for
HARTZ, Circuit Judge
Notes
(a) Except as otherwise provided in subsection (b), a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in, the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
(b) Subsection (a) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note.
(c) A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation: