Spectrum Scan LLC and Joli Lofstedt, Trustee v. Valley Bank & Trust Co. (In re Tracy Broadcasting Corporation), 438 B.R. 323 (Bankr. D. Colo. 2010)


Debtor Tracy Broadcasting operated a radio station under a license from the FCC. Tracy executed a note in favor of Valley Bank and granted a security interest to the bank in Tracy’s general intangibles, as well as the proceeds thereof. Tracy filed a chapter 11 petition, and Spectrum, an unsecured creditor, filed an adversary action seeking determination of whether the bank had a security interest in the potential sale proceeds from the FCC license. The court ruled that, although the bank would ordinarily have a security interest in proceeds from the sale of the FCC license, if such sale occurred post-petition, the proceeds were “after-acquired” property under section 552(a), and thus not subject to any pre-petition liens.


In May 2008, Valley Bank & Trust loaned Tracy Broadcasting $1.5 million, evidenced by a promissory note and security agreement. Pursuant to the security agreement, Tracy pledged as collateral its “general intangibles” and proceeds thereof. The bank perfected its liens by filing UCC-1 financing statements in the relevant states, listing the general intangibles and proceeds, among other things, as collateral.

In August 2009, Tracy filed a chapter 11 petition. In October 2009, the bank filed a motion for relief from the automatic stay to enforce its security interest. The trustee and Spectrum, a vendor and unsecured judgment creditor, objected to the bank’s motion, alleging that the bank had no security interest in Tracy’s FCC license or any proceeds from the sale of the license. The court granted relief from the stay, but bifurcated the issue of whether the FCC license was collateral for the bank’s loan. The parties filed cross-motions for summary judgment on the issue. The Bankruptcy Court ruled against the bank and held it did not have a security interest in the post-petition proceeds of the license.


Underlying the parties’ dispute was section 310(d) of Title 46 of the U.S. Code, which prohibits FCC licenses from being pledged as collateral. The issue was two-fold: one, whether the future proceeds of the sale could be pledged as collateral; and two, whether the bank had a perfected security interest where such sale proceeds arise post-petition. “The case presents a question of law: does the Bank’s security interest extend to ‘proceeds’ received by the Trustee upon a future transfer of the Debtor’s interest in the FCC license, where there was no contract for transfer of the license in existence at the time the Chapter 11 petition was filed?”

Spectrum made two arguments. First, it argued that UCC 9-315(c) states that security interests in proceeds are perfected only if the security in the original collateral is perfected. Because security interests could not be perfected against the FCC license, there could be no security interest in the proceeds from its sale. Second, Spectrum argued that, even if a security interest in the proceeds could be perfected, UCC 9-322 states that a security interest cannot attach to proceeds until the debtor has a right to receive such proceeds. Tracy did not have a contract to sell the license at the time it filed its chapter 11 petition, so it did not have a pre-petition right to any such proceeds. Therefore, any right to proceeds Tracy might receive for the license would only arise post-petition, and Bankruptcy Code section 552 barred the bank from asserting a lien against the post-petition property.  

The bank argued that an FCC license may be bifurcated into “public rights” and “private rights.” The public rights deal with who may become a licensee, and the conditions attached to using the license. These public rights, the bank acknowledged, could not be subject to a security interest under federal law. However, the bank asserted that private rights, such as the sale of the FCC license and proceeds from such sale, could be pledged as collateral. Therefore, the bank’s pre-petition security interest in private rights of the FCC license, including any right to sell or sale proceeds, were perfected by its pre-petition UCC financing statements listing all general intangibles of Tracy’s.  

The court determined that the issue had not been addressed by the Tenth Circuit, and that other circuits dealt with the issue inconsistently. One line of cases from the Sixth and Seventh Circuits rejected any security interest in any aspect of the FCC license. Another line of cases in the Ninth Circuit and Fourth Circuit (at the trial level) recognized a bifurcation of “public rights” and “private rights” in FCC licenses. These cases held that while public rights could not be pledged as collateral, private rights (e.g., sale of the license) could. The Tracy court assumed, for the purposes of this order, that the bifurcation line of cases had been decided rightly.  

This was, however, only the beginning of the analysis. The court acknowledged that the bank would have a perfected security interest in the sale proceeds of the FCC license outside of bankruptcy, but noted that Bankruptcy Code section 552, which prohibits any liens against property acquired post-petition, was applicable here. Section 552(a) provides that any “property acquired by the estate after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case.” Section 552(b) provides an exception to this general rule. If the debtor entered into a pre-petition security agreement, and “if the security interest … extends to property of the debtor acquired before the commencement of the case and to proceeds … of such property,” then the security interest will extend to “such proceeds” acquired by the estate post-petition, “to the extent provided by such security agreement and by applicable non-bankruptcy law ….” (Emphasis in opinion.)  

The court framed the question: did the debtor have sufficient rights in the sale and proceeds of the FCC license for a UCC lien to attach prior to filing its bankruptcy petition? Put more generally, was there any pre-petition property against which the bank could assert its lien? The court’s answer to that question was “no.”

The debtor’s right to receive value for its license (i.e., its “private right”) was subject to two contingencies, and thus too remote. First, there was no prepetition agreement to sell the license; and second, the FCC had not approved a transfer of the license. Since neither contingency occurred pre-petition (or post-petition, for that matter), the debtor did not have a sufficient private property interest in proceeds of the FCC license, pre-petition, against which a security interest could be asserted. The court therefore concluded that section 552(a) of the Bankruptcy Code prevented the bank from encumbering any value that the debtor’s estate may receive from any future post-petition transfer of the license. The bank’s motion for summary judgment was denied, and Spectrum’s and the trustee’s motions for summary judgment were granted. The court entered a judgment declaring that the bank had no security interest in the license or any future proceeds derived from a transfer of the license.


The Tracy court cuts a fine line on the securitization of FCC licenses. The court rejected the bright-line rule prohibiting any security interest against any aspect of the FCC license, but this ruling only helps creditors where the right to proceeds from the sale of the FCC license arise before the petition date. To the extent a creditor has any say in a debtor’s affairs, it should encourage such sales to occur pre-petition. This decision is on appeal, and we will update you when a decision is reached.