## Facts

- Airadigm Communications, Inc., a cellular-service provider, acquired fifteen FCC PCS licenses through an FCC auction and elected to pay under an FCC installment plan.
- Airadigm filed Chapter 11 in 1999; the FCC quickly cancelled the licenses and filed a proof of claim for unpaid installment amounts.
- Airadigm’s first confirmed plan proceeded on the assumption the licenses had been validly cancelled, while including contingent provisions addressing possible reinstatement.
- After the Supreme Court’s decision in *FCC v. NextWave Personal Communications, Inc.* (interpreting 11 U.S.C. § 525(a)), the FCC conceded the cancellation was improper and reinstated the licenses as though they had never been cancelled.
- In 2006, Airadigm filed a second Chapter 11 case to address unresolved consequences of reinstatement and to restructure its capital and creditor arrangements.
- Airadigm brought an adversary proceeding seeking to determine and limit the FCC’s continuing financial interests in the reinstated licenses under the bankruptcy plans.
- The second plan included a broad release protecting Telephone and Data Systems, Inc. (TDS), a key financier, from claims arising in connection with the plan, except for willful misconduct.
- The bankruptcy court confirmed the second plan and approved the TDS release as necessary to obtain TDS’s financing; the district court affirmed.
- Airadigm appealed and the FCC cross-appealed to the Seventh Circuit.

## Issues

1. Whether, and to what extent, bankruptcy confirmation could restructure the FCC’s financial claim and asserted security interests tied to PCS licenses acquired on installment terms after the licenses were reinstated.
2. Whether the bankruptcy court’s plan provisions improperly interfered with the FCC’s independent regulatory and public-interest licensing authority.
3. Whether the Bankruptcy Code permits a Chapter 11 plan to grant a non-debtor (TDS) a release from third-party claims, and what limits apply.
4. How 11 U.S.C. § 525(a) and *NextWave* constrain the FCC’s ability to use licensing consequences to enforce payment of debts addressed in bankruptcy.

## Decision

- The Seventh Circuit largely affirmed confirmation of Airadigm’s second Chapter 11 plan.
- The court held the bankruptcy court could restructure the FCC’s creditor rights relating to installment-payment obligations, treating the FCC’s financial claim like other creditor claims in bankruptcy.
- The court limited bankruptcy relief to financial/property interests and rejected any interpretation that would dictate how the FCC must exercise core regulatory discretion over licensing in the public interest.
- The court upheld the non-debtor release for TDS as permissible in narrow circumstances supported by findings that the release was important to securing essential financing and was appropriately limited (including a willful-misconduct carveout).
- The court clarified that the FCC remained a creditor as to unpaid obligations, but its collection rights were constrained by confirmed plan treatment and bankruptcy law.

## Legal Principles

- A bankruptcy court may adjust a governmental unit’s financial or property interests as a creditor in reorganization, but it may not commandeer the agency’s separate regulatory decision-making entrusted by federal statute.
- Under 11 U.S.C. § 525(a), as applied in *NextWave*, the FCC may not revoke or condition licenses solely to collect payment of a debt that is dischargeable or otherwise addressed through bankruptcy.
- Reinstatement of a license does not immunize the FCC’s monetary claim from bankruptcy treatment; the FCC’s proof of claim remains subject to confirmation rules and plan-based restructuring.
- Non-debtor releases are not categorically barred in Chapter 11, but are allowed only in limited, fact-specific settings where supported by detailed findings (including necessity to the plan, substantial contribution by the released party, and tailored scope).

## Conclusion

The Seventh Circuit affirmed confirmation of Airadigm’s second reorganization plan, holding that bankruptcy could restructure the FCC’s installment-auction debt as a creditor claim without controlling the FCC’s public-interest regulatory authority, and that a carefully limited non-debtor release for an essential financier could be approved on specific necessity and fairness findings.


Airadigm Commc'ns, Inc. v. FCC (In re Airadigm Commc'ns, Inc.), 519 F.3d 640 (7th Cir. 2008)