******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) In re Application of ) ) WALTER O'CHESKEY, Trustee-in- ) Bankruptcy for NCPT ) File No. 03992-CL-AL-1-93 Cellular, Inc. (Assignor) ) and ) ) TRIAD CELLULAR L.P. (Assignee)) ) For Consent to the Assignment ) of License of Cellular Radio ) Station KNKN334, Market 652A; ) Texas 1 - Dallam RSA ) MEMORANDUM OPINION AND ORDER Adopted: April 20, 1998 Released: April 21, 1998 By the Commission: I. INTRODUCTION 1. In this order, we deny an Application for Review filed by Amarillo CellTelCo (Amarillo) seeking review of a February 24, 1994 order by the Chief of the former Mobile Services Division (MSD) of the Common Carrier Bureau, which granted assignment of the A-block cellular license for Market 652A, Texas 1 - Dallam RSA (Texas 1) from Walter O'Cheskey, Trustee-in-Bankruptcy (O'Cheskey) to Triad Cellular L.P. (Triad). We also deny a Petition for Partial Reconsideration of the MSD Order filed by the Motion Picture Association of America (MPAA). The parties seeking review contend, among other things, that the MSD exceeded its delegated authority when it granted the assignment of the Texas 1 license. We disagree. Accordingly, we affirm the MSD Order and uphold the challenged assignment of license. II. BACKGROUND 2. In 1991, NCPT Cellular of Texas (NCPT) was awarded the Texas 1 license. On December 11, 1992, NCPT initiated bankruptcy proceedings in the United States Bankruptcy Court for the Northern District of Texas. In that proceeding, the bankruptcy court, with the consent of the Commission, designated Walter O'Cheskey as the court-appointed trustee for NCPT, and approved the sale of the NCPT system to Triad. Amarillo, an unsuccessful bidder in the bankruptcy proceeding, petitioned the Commission to deny the assignment of license to Triad. Among the claims raised by Amarillo was the contention that the proposed assignment would give Motorola, the major creditor in the bankruptcy proceeding, an impermissible security interest in an FCC license. Amarillo based its contention on the bankruptcy court's order, which approved a secured claim by Motorola for $1.6 million against the bankrupt's assets, to be paid by Triad upon completion of the sale. In opposition, O'Cheskey and Triad asserted that the proceedings before the bankruptcy court included uncontested expert testimony that the value of the Texas system assets exclusive of the license exceeded $1.6 million. They alleged that the collateral value of a cellular license which is properly subject to security interests may be broadly defined to include not only tangible assets (equipment, physical assets, etc.) but also goodwill, going concern value and other intangibles. 3. In the MSD Order, the MSD rejected Amarillo's security interest argument. First, the MSD noted that the bankruptcy court had stated in its order that Motorola did not hold a security interest in the Texas 1 license. Second, the MSD ruled that while Commission policy prohibits a licensee from giving a security interest in a license, it does not prohibit giving a security interest in the "proceeds of the sale of a license." Specifically, MSD reasoned that [w]hen 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 the 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. The MSD Order cited In re Ridgely, a bankruptcy case, in support of its conclusion. It also noted a contrary statement by the Seventh Circuit in a second bankruptcy case in which the Commission did not participate, Tak Communications, but disagreed with the Tak court. 4. Amarillo filed an Application for Review of the MSD Order on March 18, 1994. Amarillo disputes the MSD's finding that Motorola did not obtain a security interest in the license, alleging that NCPT's other assets exclusive of the license were insufficient to secure Motorola's $1.6 million claim. Citing Tak, Amarillo also alleges that the MSD erred in its ruling that a party could obtain a security interest in the proceeds of a license sale, and argues that the MSD exceeded its delegated authority because the issue had not been previously decided by the Commission. In their joint opposition, O'Cheskey and Triad argue that the MSD's ruling correctly stated Commission policy and that the MSD acted properly within its delegated authority. They also contend that under the bankruptcy court's decision, Motorola relinquished any rights it had or might have had by virtue of any lien on the Texas 1 license. On March 28, 1994, MPAA filed a Petition for Partial Reconsideration of the MSD Order in partial support of Amarillo's position. MPAA alleges that the MSD improperly made new law and further states that if the Tak case erroneously characterized Commission policy, it was for the Commission and not MSD to correct the court. III. DISCUSSION 5. We conclude that the MSD's approval of the license transfer from O'Cheskey to Triad should be upheld. The record supports the MSD's conclusion that Motorola does not hold an actual or potential security interest in the Texas 1 license. In addition, we find that Motorola does not hold an interest in the proceeds from the sale of the license. In the proceedings before the bankruptcy court, Motorola offered expert testimony that the value of the Texas system's tangible assets, exclusive of the FCC license and any proceeds from its sale, was sufficient to secure Motorola's claim. Amarillo offered no evidence to contradict this testimony. Based on this valuation, the bankruptcy court approved a settlement in which Motorola relinquished any rights it might otherwise have with respect to the Texas 1 license and any proceeds from sale of the license. 6. In the MSD Order, the MSD properly relied on the bankruptcy court's decision regarding the value of NCPT's assets in concluding that Motorola did not hold a security interest in the Texas 1 license. We also find no compelling reason to question the factual findings of the bankruptcy court in this case, discussed above, concerning the value of the assets: the valuation of the estate is a factual question decided by a court of competent jurisdiction with which the Commission will not interfere absent extraordinary circumstances. We also note that since the MSD Order, the bankruptcy court's decision has been upheld against Amarillo's challenge on appeal and is now final. Therefore, we see no reason to depart from our general policy of deferring to bankruptcy courts on such matters. 7. Because we conclude that Motorola does not have a security interest in the license or the proceeds of the sale of the license, we do not need to reach the issue of whether the MSD exceeded its delegated authority in deciding that Commission policy does not prohibit a security interest by a third party in the proceeds of a sale of a license. In any event, we find that even if Motorola had an interest in the sale proceeds in this case, the MSD was not presented with "novel questions of fact, law or policy which [could not] be resolved under outstanding [Commission] precedents or guidelines." The Commission's 1988 decision in the Bill Welch case provides the appropriate "outstanding precedent" for the MSD reasonably to conclude that "[a] security interest in the proceeds of the sale of a license does not violate Commission policy." As noted above, the MSD's decision cited In re Ridgely with approval on this issue. In Ridgely, the bankruptcy court relied on Bill Welch in concluding that there is no legal bar to taking a security interest in the proceeds of the sale of a license, just as cellular licensee may receive a profit from the transfer of a base license to a third party. In the absence of a legal bar to security interests in the proceeds of a license, the only remaining question is whether the Commission has articulated a policy against security interests in the proceeds of such a license, which it has not. In fact, in the context of developing policies and procedures for spectrum auctions, the Commission has again expressly recognized that it is permissible for a party to hold a security interest in the proceeds of a sale of a license. Lenders may not be granted direct security interests in licenses themselves. IV. CONCLUSION 8. We conclude that MSD properly granted the assignment of the Texas 1 license from O'Cheskey to Triad. We therefore deny the Application for Review and affirm the MSD Order on this basis. V. ORDERING CLAUSES 9. Accordingly, IT IS ORDERED that pursuant to Sections 4(i) and 5(c)(5) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i) and 155(c)(5), and Section 1.115 of the Commission's rules, 47 C.F.R.  1.115, the Application for Review filed by Amarillo CellTelCo on March 18, 1994, IS DENIED. 10. IT IS FURTHER ORDERED that pursuant to Section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), and Section 1.43 of the Commission's rules, 47 C.F.R.  1.43, the Motion for Stay filed by Amarillo CellTelCo on February 28, 1994, IS DISMISSED as moot. 11. IT IS FURTHER ORDERED that pursuant to Section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), and Section 1.45 of the Commission's rules, 47 C.F.R. 1.45, the Motion to Strike Unauthorized Reply filed by Walter O'Cheskey and Triad Cellular L.P. on March 29, 1994, IS DISMISSED as moot. 12. IT IS FURTHER ORDERED that pursuant to Sections 4(i) and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i) and 405, and Section 1.106 of the Commission's rules, 47 C.F.R.  1.106, the Petition for Partial Reconsideration filed by the Motion Picture Association of America on February 28, 1994, IS DENIED. 13. IT IS FURTHER ORDERED that pursuant to Section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), the Joint Motion for Leave to Supplement the Record; Request for Consolidation; and Request for a Status Conference, filed by Walter O'Cheskey and Triad Cellular L.P., IS DISMISSED as moot. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary