Tracy Broadcasting Corporation v. Spectrum Scan, LLC
696 F.3d 1051 (2012)
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Rule of Law:
A creditor's pre-petition security interest in a debtor's general intangibles, which includes the right to proceeds from the future sale of a federally-regulated broadcast license, attaches at the time the security agreement is executed and thus has priority over unsecured creditors in the proceeds of a post-petition sale of that license.
Facts:
- Tracy Broadcasting operated an FM radio station under a license issued by the Federal Communications Commission (FCC).
- On December 13, 2007, Tracy Broadcasting granted Valley Bank & Trust Company (Valley Bank) a security interest in various assets, including its general intangibles and their proceeds.
- On May 5, 2008, Tracy Broadcasting executed a promissory note for a $1,596,100 loan from Valley Bank, which was secured by the 2007 agreement.
- On January 23, 2009, Spectrum Scan, LLC obtained a $1,400,000 judgment against Tracy Broadcasting, making it a judgment creditor.
- Tracy Broadcasting’s most valuable asset was its FCC broadcasting license, estimated to be worth $950,000.
- At the time Tracy Broadcasting sought bankruptcy protection, there was no pending agreement for the sale or transfer of the FCC license.
Procedural Posture:
- Tracy Broadcasting filed a petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Colorado.
- Spectrum Scan, an unsecured creditor, initiated an adversary proceeding in the bankruptcy court against Valley Bank to determine the validity of Valley Bank's security interest.
- The bankruptcy court (court of first instance) granted summary judgment for Spectrum Scan, ruling that Valley Bank had no priority security interest in the proceeds of a future license sale.
- Valley Bank appealed the decision to the U.S. District Court for the District of Colorado.
- The district court (intermediate appellate court) affirmed the bankruptcy court’s decision.
- Valley Bank (appellant) then appealed to the U.S. Court of Appeals for the Tenth Circuit, with Spectrum Scan as the appellee.
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Issue:
Does a creditor's pre-bankruptcy security interest in a debtor's 'general intangibles,' which includes the right to proceeds from a future, FCC-approved sale of a broadcast license, have priority over unsecured creditors in the proceeds of a post-bankruptcy sale of that license?
Opinions:
Majority - Hartz, J.
Yes. A creditor's pre-petition security interest in the right to proceeds from the sale of an FCC license attaches at the time of the security agreement and is enforceable in bankruptcy. The court's reasoning proceeded in two steps. First, analyzing federal law, the court determined that while the Federal Communications Act (FCA) and FCC policy prohibit security interests in the broadcast license itself to maintain regulatory control, they explicitly permit a licensee to grant a security interest in the proceeds from a future, FCC-approved sale of the license. The court deferred to the FCC's reasonable interpretation under Chevron, treating the licensee's present right to receive future proceeds as a distinct, conveyable economic interest. Second, under the principle of Butner v. United States that state law defines property interests in bankruptcy, the court looked to Nebraska's Uniform Commercial Code. It concluded that this right to future proceeds qualifies as a 'general intangible' and is not too speculative or contingent for a security interest to attach under Neb. Rev. St. U.C.C. § 9-203. The court found strong support in the policy behind Neb. Rev. St. U.C.C. § 9-408, which is designed to facilitate lending by allowing security interests in government-issued licenses to attach immediately, even if a transfer requires future government consent. Therefore, because Valley Bank's security interest attached to the right to proceeds (pre-petition property), it extends to the actual proceeds of the sale (post-petition property) under Bankruptcy Code § 552(b)(1).
Analysis:
This decision solidifies the ability of holders of valuable, federally-regulated licenses to use them as collateral to obtain financing. By clearly distinguishing between a prohibited interest in the license itself and a permissible interest in its economic proceeds, the court provides a clear pathway for lenders to secure their loans. The ruling harmonizes federal regulatory policy with state commercial law, establishing that the 'right to proceeds' is not a mere contingency but a present property right (a general intangible) to which a security interest can attach immediately. This precedent is significant for secured transactions involving any government-regulated asset where transfer is restricted, as it validates the pre-petition attachment of security interests in the asset's future economic value, thereby protecting secured creditors in bankruptcy.
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