Appeals from the United States District Court for the Western District of Wisconsin. Nos. 07-cv-616-bbc, 07-cv-617-bbc, 07-cv-660-bbc, and 08-cv-152-bbc-Barbara B. Crabb, Judge.
The opinion of the court was delivered by: Dow, District Judge*fn1
Before KANNE and EVANS, Circuit Judges, and DOW, District Judge.
The parties are here because of the continuing saga that has been the Chapter 11 reorganization of Airadigm Communications, Inc. ("Airadigm"). The latest appearance involves three claims of Telephone and Data Systems, Inc. ("TDS"). The claims were filed in Airadigm's 2006 bankruptcy, but have roots in Airadigm's 1999 bankruptcy and 2000 plan of reorganization. The Federal Communications Commission ("FCC") objected to all three claims. The bankruptcy court overruled the objections to two of the claims, but sustained the objection to the third and disallowed that claim. The district court affirmed in part and reversed in part, concluding that the objections to all three claims should be overruled.
To resolve the appeal, we combine three ingredients-equal parts bankruptcy law, stipulation interpretation, and estoppel. The admixture leads us to agree with the district court's treatment of two of the three claims at issue. The judgment of the district court is affirmed in part and reversed in part.
A. Airadigm, its Licenses, and the 1999 Bankruptcy
Airadigm is a telecommunications companywhose principal assets are fifteen mobile phone service licenses that it won at auction in the late 1990s. The FCC issued the licenses and retained a security interest in them. In the FCC's argot, the licenses were "C-block" and "F-block" licenses. The C-block licenses were 30 megahertz each and the F-block licenses were 10 megahertz each. With the licenses in hand, Airadigm had the capacity to provide mobile phone service in Wisconsin, Iowa, and Michigan.
The licensing scheme and its nomenclature come from an amendment to the Communications Act of 1934; the amendment set aside 120 megahertz of the electromagnetic spectrum for mobile communications devices. We described the scheme and its attendant regulations in some detail the last time that the parties were here. In re Airadigm Communications, Inc. (Airadigm II), 547 F.3d 763, 765 (7th Cir. 2008). The C- and F-blocks were set aside for small businesses and rural telephone companies (among others). Unlike licenses that could be purchased by the large telecommunications companies, these licenses could be purchased on installment plans with favorable interest rates. See Federal Communications Commission v. NextWave Personal Communications, Inc., 537 U.S. 293, 296 (2003) (detailing the statutory and regulatory regime applying to C- and F-block licenses).
The favorable licensing scheme, however, was not without shoals: the Congressional Budget Office ("CBO") predicted that many successful license-bidders would be forced into bankruptcy "unless the debt owed to the government by the * * * licensees is sharply reduced." Congressional Budget Office, IMPENDING DEFAULTS BY WINNING BIDDERS IN THE FCC'S C BLOCK AUCTION: ISSUES AND OPTIONS 4 (1997), http://www.cbo.gov/ftpdocs/0xx/ doc37/cblock.pdf.
In 1999, Airadigm unintentionally proved the CBO's prescience by defaulting on its obligation to make payments on the licenses and filing a Chapter 11 bankruptcy petition in the United States District Court for the Western District of Wisconsin. At that time, and pursuant to FCC regulations, the FCC revoked the licenses. See 47 C.F.R. § 1.2110(g)(4)(iv). The decision to revoke the licenses made waves, because a bankruptcy estate springs into existence by operation of law whenever a bankruptcy petition is filed. The estate consists of all property of the debtor "wherever located and by whom-ever held." 11 U.S.C. § 541(a). So revoking the licenses issued to Airadigm had two major effects: (1) it removed (at first blush) the licenses from the estate, and (2) it made (again, at first blush) the FCC an unsecured creditor. See also Airadigm II, 547 F.3d at 766 (describing the FCC's early litigation position).
In keeping with the FCC's license revocation, the plan of reorganization ("2000 Plan") that Airadigm proposed treated the licenses as if they were not part of the bankruptcy estate. The bankruptcy court confirmed the 2000 Plan over the FCC's objections. The linchpin of the plan was Airadigm's petition to the FCC for reinstatement of the licenses; treatment of various claims in the 2000 Plan depended on how and when the FCC acted on Airadigm's petition.
B. Salient Features of the 2000 Plan-the OEDA and Ericsson Claims
The 2000 Plan provided treatment of two creditors' claims that are of consequence to this appeal-the Oneida Enterprise Development Authority ("OEDA") and Ericsson, Inc. ("Ericsson"). The claims of each were to be paid under the 2000 Plan, and they were to be financed by loans provided by TDS. Both of the claims have since been assigned to TDS.
The claims were to be given different treatment depending on whether the 2000 Plan's "Primary Plan" or "Back-up Plan" applied. Article V of the 2000 Plan detailed the treatment of the claims under the Primary Plan. If the FCC denied reinstatement of all the licenses or failed to act on Airadigm's petition in a timely manner, then Article X, the Back-up Plan, would apply to OEDA's claim.
Here is how OEDA's claim would shake out: under the Primary Plan, OEDA would receive $49 million, "[p]rovided that the FCC grant[ed] reinstatement of at least the Minimum Licenses," a term of art.*fn2 The $49 million was to be paid when the FCC's order reinstating the license became final. 2000 Plan § 5.3.
Under the Back-up Plan in Article X, however, OEDA's claim was to be slashed. The Back-up Plan stated: "On the Back-up Transfer Date * * * Buyers"-TDS-"shall pay OEDA $2 million in full satisfaction of its secured Claims." 2000 Plan § 10.7. The Back-up Transfer Date was ten days after the date on which TDS no longer had to fund one of the loans that TDS made as part of the 2000 Plan-the so-called "Funding Termination Date." See 2000 Plan §§ 2.5, 2.24, 6.7. Section 6.7 of the 2000 Plan gave TDS the option to extend the Funding Termination Date beyond that which was spelled out in the plan.
Ericsson filed the other important claim that was to be paid under the 2000 Plan. Under the 2000 Plan's Primary Plan, Ericsson would receive $41 million "[p]rovided that the FCC grant[ed] reinstatement of at least the Minimum Licenses."*fn3 The $41 million was to be paid when the FCC's order reinstating the license became final. If fewer than the Minimum Licenses were reinstated, the amount owed to Ericsson would be reduced pursuant to a formula based on the number of licenses that were reinstated. See 2000 Plan §§ 5.2(b), 6.12. Under the Backup Plan, Ericsson generally was not entitled to any payments but was entitled to keep the liens securing the claim. 2000 Plan §§ 10.2, 10.5, 5.2.
Payment of OEDA's and Ericsson's claims would be financed by a loan provided by TDS. 2000 Plan §§ 6.4-6.5.
The holders of allowed claims were entitled to go to court to force payment of the loans that would pay their claims. 2000 Plan § 12.6 ("[T]he holder of an Allowed Claim shall be entitled to take any steps necessary to enforce this Plan against the Debtor, the assets of Debtor or [TDS].").
C. Financing the 2000 Plan-the Claim 14 Loans
In addition to the TDS loan that would pay for the Ericsson and OEDA claims, three other TDS loans are important to our story.*fn4 The loans were part of the 2000 Plan and have become the subject of a new claim in the 2006 bankruptcy. We will call these advances of funds the "Claim 14 Loans." The Claim 14 Loans comprise the Confirmation Loan, the Working Capital Loan, and the Construction Loan. The Confirmation Loan furnished funds for a $30 million collateral payment to Ericsson that is not in issue, as well as funds to pay administrative expense claims, priority claims, and a few other claims that are not important to this case. The loan was to be secured by a first priority security interest in all of Airadigm's Unlicensed Assets-a term defined in the 2000 Plan to include every Airadigm asset except the FCC licenses and the proceeds of the licenses. However, the 2000 Plan and the loan documents suggest that the loan was not a loan at all, but an asset sale. Although the loan accrued interest at a yearly rate of 8.5%, the 2000 Plan also stated that "[t]he Confirmation Loan will be repaid by the surrender to Buyers"-that is, TDS-"of all collateral securing the Confirmation Loan, and Buyers shall be obligated to accept a surrender of the collateral in full and complete satisfaction of the Confirmation Loan." 2000 Plan § 6.3 (emphasis added). That feature, repayment solely by collateral surrender, is the FCC's problem with the loan.
The second TDS loan was the "Working Capital Loan." The Working Capital Loan was secured by a negative pledge of Airadigm's assets and was to be used by Airadigm for "its ongoing working capital needs." Under the 2000 Plan, the loan amount was for up to $600,000 per month, an amount which would be reduced to the extent Airadigm could stand on its own. Interest on the Working Capital Loan was to accrue at a yearly rate of 8.5%. The amount of the loan and the interest were due and payable on the Funding Termination Date. 2000 Plan §§ 6.6, 6.7. The loan was to be repaid by surrendering Airadigm's non-license assets. App. 135.
The third TDS loan was the "Construction Loan." The Construction Loan was for "not less than $1.5 million * * * for the purpose of financing [Airadigm's] acquisition and construction of additional cell sites." The loan was secured by a first priority purchase money security interest in the equipment and property that was pur-chased with the loan. The loan contained the same now-controversial provision that appeared in the other loans: "The Construction Loan will be repaid by the surrender of the collateral securing the Construction Loan to [TDS], and [TDS] shall be obligated to accept a surrender of the collateral in full and complete satisfaction of the Construction Loan." 2000 Plan § 6.8.
The bankruptcy court confirmed the 2000 Plan over the FCC's objections.
D. NextWave, the Stipulation, and the 2006 Bankruptcy
After the bankruptcy court confirmed the 2000 Plan, the Supreme Court ruled in Federal Communications Com-mission v. NextWave Personal Communications, Inc., 537 U.S. 293 (2003), that the FCC's automatic license revocation rule violated 11 U.S.C. § 525. Section 525 says that agencies "may not * * * revoke * * * a license * * * [issued to] a debtor under this title * * * solely because" the debtor has not paid "a debt that is dischargeable" in bankruptcy. The Supreme Court held that the FCC's license revocation rule violated Section 525 and therefore was an invalid exercise of authority under the Administrative Procedures Act. 537 U.S. at 300-02; 5 U.S.C. § 706(2)(A). After NextWave came down, the FCC denied as moot Airadigm's petition to have the licenses reinstated. "[B]ecause Airadigm was under the protection of Chapter 11 of the U.S. Bankruptcy Code, the Commission's automatic cancellation rule was ineffective." In re Airadigm Communications, Inc., 18 F.C.C.R. 16296, 16299 (F.C.C. Aug. 8, 2003).
The legal effect of the FCC's ruling was not just to restore the licenses, but to declare that Airadigm always had the licenses. As a practical matter, the FCC acknowledges that the ruling had the effect of restoring the licenses. But by the time that the FCC's 2003 ruling came around, TDS was no longer obligated under the 2000 Plan to fund the loans that were to pay creditors. In other words, even though the 2000 Plan would have paid the claims of OEDA and Ericsson that are discussed above, and even though the 2000 Plan made the claims enforceable after the Plan was confirmed (2000 Plan § 12.6), the funding to pay the claims had dried up.
In May 2006, Airadigm filed a new Chapter 11 bankruptcy petition. It also filed a motion for a final decree closing the 1999 bankruptcy. See Fed. R. Bankr. P. 3022. The FCC objected to closing the 1999 bankruptcy and argued instead that the parties should discuss modifications to the 2000 Plan, apparently pursuant to 11 U.S.C. § 1127(b), which gives the proponent of a plan and the bankruptcy court authority to modify a plan post-confirmation "if circumstances warrant such modification."
The parties settled the dispute over whether to allow a new bankruptcy to proceed by entering into a "Stipulation." As originally drafted it had five operative paragraphs, four of which matter and are set out below:
1. Except as otherwise specifically set forth in this Stipulation, all of the rights of Airadigm as debtor, and the FCC and TDS as creditors, under the 2000 Plan, including their respective rights as holders of the Allowed Claims they hold pursuant to the 2000 Plan (including the rights of TDS as assignee of certain Allowed Claims), are in no way ...