The Bankruptcy Hotline

The Ninth Circuit has ruled that the proceeds from the cancellation and subsequent sale of licenses held by a licensee in bankruptcy by the Federal Communications Commission were not part of the bankruptcy estate. Thacker v. Federal Communications Commission (In re Magnacom Wireless LLC), No. 05-35839 (Sept. 17).

The debtor purchased radio spectrum licenses from the FCC to provide personal communications services. Under an installment payment plan, the debtor paid down approximately $7 million and the balance of the $55 million purchase price was to be paid in quarterly installments throughout the 10-year license. The debtor further agreed that it possessed no underlying right to the spectrum; that the licenses would be automatically cancelled in the event of default; and that it would not be entitled to any proceeds from the sale of new licenses following cancellation. The debtor ultimately did default and filed for bankruptcy. After relief was granted, the FCC cancelled the licenses and filed a proof of claim as an unsecured creditor for $48 million. While the claim was pending, the FCC auctioned the licenses and the winning bid was for $287 million. The bankruptcy court ruled the FCC was not entitled to any distribution from the estate. Additionally, in response to a complaint filed by the Chapter 7 trustee seeking the return of any proceeds from the sale of the new licenses that exceeded the amount the debtor owed the FCC, the bankruptcy court dismissed the complaint for failure to state a claim upon which relief could be granted. The trustee appealed to the district court, which affirmed the decision.