Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-92-01465/USCOURTS-caDC-92-01465-0/pdf.json

Parties Involved:
Committee for a Fair Lottery
Intervenor
Thomas Domencich
Intervenor
Federal Communications Commission
Appellee
Futurewave General Partners L.P.
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 14, 1993 Decided August 16, 1994

No. 92-1464

CELLWAVE TELEPHONE SERVICES L.P.,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

THOMAS DOMENCICH,

COMMITTEE FOR A FAIR LOTTERY,

INTERVENORS

No. 92-1465

FUTUREWAVE GENERAL PARTNERS L.P.,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

THOMAS DOMENCICH,

COMMITTEE FOR A FAIR LOTTERY,

INTERVENORS

Appeal from an Order of the

Federal Communications Commission

Michael F. Morrone argued the cause for appellants. With him on the joint briefs were Mark F.

Evens, Michael R. Bennet, and Arthur S. Garrett, III.

Jane E. Mago, Counsel, Federal Communications Commission, argued the cause for appellee. On

the brief were Renee Licht, Acting General Counsel, Daniel M. Armstrong, Associate General

Counsel, and Roberta L. Cook, Counsel, FCC. John E. Ingle, Counsel, FCC, entered an appearance.

On the brief for intervenors were Carl W. Northrop and E. Ashton Johnston.

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Before WALD, GINSBURG, and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: Cellwave Telephone Services, L.P. and Futurewave General

Partners, L.P. appeal an order of the Federal Communications Commission dismissing their

applications to operate and construct cellular telephone systems in two separate rural service areas.

TheCommission concluded that, as ofthe time theyfiled their applications, the applicants' partnership

structures did not conform to FCC rules designed to preclude alien control of a broadcast licensee.

We affirm.

I. BACKGROUND

The FCC awards most licenses to construct and operate cellular telephone systems in Rural

Service Areas(RSAs) by lot. Under the regulations that govern the lottery, each entrant must submit

a letter-perfect application. Following the lottery, the Commission staff reviews the selected

application to determine whether it complies with all applicable rules, regulations, and other

requirements. The selectee may not then amend its application in order to cure any imperfection. If

the application is defective, then the Commission simply dismisses it and selects a second applicant

by lot. See generally Florida Cellular Mobil Communications Corp. v. Federal Communications

Commission, No. 92-1664, 1994 WL 364018 at *1-*2 (D.C. Cir. July 15, 1994) (describing the

origin and nature of the lottery process for RSA licenses).

The appellants are partnerships formed pursuant to the laws of Delaware. Each was initially

selected by lot to serve an RSA. The Commission dismissed their applications, however, for

non-compliance with its rules for the prevention of alien ownership or control of a radio license.

Section 310(b) of the Communications Act provides that no common carrier license shall be

granted to "any alien" or to "any corporation of which any officer or director is an alien or of which

more than one-fifth of the capital stock is owned of record or voted by aliens...." 47 U.S.C. §§

310(b)(1), (3). Although the Act says nothing about partnerships, the FCC has held that no

partnership in which any general partner is an alien may hold a common carrier license. See Moving

Phones Partnership, L.P. v. Federal Communications Commission, 998 F.2d 1051, 1055 (D.C. Cir.

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1993). The Commission has treated limited partners differently, however. Because a limited

partnership interest is more analogous to the equity interest of a corporate shareholder than to the

managerial interest of a general partner, the FCC has applied to limited partners the same rules that

it applies to the stockholders of a corporationif the limited partner is properly insulated from

managerial authority. See Wilner & Scheiner, 103 F.C.C.2d 511, WW 16-19, at 520-22 (1985),

recon. in part, 1 F.C.C.Rcd. 12 (1986).

Each appellant was originally organized as a general partnership and each had some alien

partners. In order to make itself eligible for the RSA lottery, each partnership decided to convert

itselfinto a limited partnership, with the alien partners becoming limited partners. In the proceedings

before the FCC each partnership asserted that it had amended its partnership agreement by a vote of

the partners prior to filing their respective applications with the Commission. At the time they filed

their applications, however, neither partnership had filed with the Delaware Secretary of State the

documents necessary to convert itself into a limited partnership. The partnerships made their

Delaware filings only after they were selected in the lottery, whereupon each applicant amended its

application to reflect the filing.

The FCC dismissed the applications because, as it read Delaware law, a limited partnership

does not come into legal existence until the certificate oflimited partnership isfiled with the Secretary

of State. Therefore, the agency concluded that each partnership was still a general partnership when

it filed its cellular lottery application. As such the partnerships did not comply with the Commission's

alien ownership regulations and under the letter-perfect processing rule had to be dismissed.

II. ANALYSIS

The appellantsmount two challengesto the Commission's order dismissing their applications.

First, they argue that their alien partners had insulated themselves by contract from managerial

positions within the partnership and that the FCC should be required to take account of this fact.

Alternatively, they argue that their limited partnership came into being under Delaware law prior to

the filing oftheirRSAlicense applications notwithstanding their failure to file their limited partnership

certificates in Delaware, and that the FCC was therefore required to recognize them as limited

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partnerships. The first point is foreclosed by a recent case; the second proceeds from a faulty

premise.

A. Contractual Insulation of Alien Partners

The Commission has long applied the statutory prohibition on alien ownership and alien

officers and directors to entities other than corporations. See, e.g., Reexamination of the

Commission's Rules and Policies Regarding the Attribution of Ownership Interests, 97 F.C.C. 2d

977, 1009 (1984) (holding that § 310(b)(3) appliesto "all businessforms"). Otherwise an alien could

evade the congressional policy prohibiting alien control of a licensee merely by choosing an

associationalrather than corporate form of organization. In the context of a general partnership, the

reason behind the rule requires that even a single alien partner be disqualifying because any partner

can act on behalf of the partnership, much as, for example, an officer may act on behalf of a

corporation. Therefore, the Commission will not grant a license to a general partnership that includes

an alien.

Appellants argue that the Commission ought to have found that even as general partnerships

they were properly structured because, prior to forming statutory limited partnerships, the alien

partners had insulated themselves by contract from any management role in the partnerships. We

addressed just this type of challenge to the Commission's rules on aliens and partnerships in Moving

Phones Partnership, L.P., above. The Commission had rejected applications from general

partnerships with aliens among the partners, based upon its earlier decision in Wilner &Scheiner, 103

F.C.C.2d 511 (1985), above. We upheld the agency's policy against both constitutional and statutory

challenges. Most important for present purposes, we specifically rejected the contention that the

Commission must exempt from the policy of § 310(b)(3) a partnership in which the alien general

partner(s) "contractually relinquish control and management," i.e. "simply because they agree not to

exercise the power of their positions." Id. at 1057. The present appellant's argument is

indistinguishable and we need not address it at length again in this case.

B. Limited Partnership Prior to Filing Certificate

In the alternative, the appellants argue that they became limited partnerships when all the

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partners signed the limited partnership agreements, and that it was arbitrary and capricious for the

Commission to refuse to recognize them assuch. In determining that Cellwave and Futurewave had

not transformed themselvesinto limited partnerships as ofthe time theyfiled theirlotteryapplications,

the Commission looked to the law ofDelaware, under which the partnerships were formed. Tracking

the Uniform Limited Partnership Act, the Delaware code provides in seemingly unambiguous terms

that

A limited partnership is formed at the time of the filing of the initial certificate of

limited partnership in the Office of the Secretary of State ... if ... there has been

substantial compliance with the requirements of this section.

DEL. CODE ANN. tit. 6, § 17-201(b). As discussed below, however, there is some disagreement

among courts in ULPA states as to whether a limited partnership certificate must have been filed in

order to form a valid limited partnership for all purposes. The courts of Delaware have not spoken

to this question.

In view of the uncertainty arising from the various ways in which state courts have read this

"uniform" law, the Commission might well have adopted its own bright-line rule requiring that a

certificate have been filed before a limited partnership can be said adequately to insulate any alien

partners, irrespective of the law of the particular state. Although some limited partnerships validly

formed so far as state law is concerned might be disqualified from holding a broadcast license under

such a rule, the Commission might have relied upon the need for a clear, uniform, and prophylactic

rule under which to evaluate applications for letter-perfect compliance with its alien control policy.

We would likely defer to the agency's need for an easily administered rule. Cf. Athens Community

Hospital, Inc. v. Shalala, 21 F.3d 1176, 1180 (D.C. Cir. 1994) ("Some over- and under-inclusiveness

would not be fatal to [a regulation] if the [agency] gave a reasonable justification for administering

only rough justice").

That, however, is not what the Commission did. Instead, it decided to look to the law of the

individualstate in which the partnership was created in order to determine for itself whether a limited

partnership had been validly formed under that state's law. (Presumably the agency's choice to

proceed in this way is also entitled to deference; we needn't say, however, for the appellants do not

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challenge it.) Because no Delaware court has ever interpreted the relevant provision of Delaware

law, the Commission set out to predict how the Delaware courts would decide the issue, much as a

federal court might do in order to apply state law. See Meredith v. City of Winter Haven, 320 U.S.

228, 234 (1943) (holding that where state law is unsettled, federal courts must attempt to "ascertain[

] what the state courts may hereafter determine the state law to be"); see also 19 CHARLES A.

WRIGHT,ARTHURR. MILLER & EDWARD H.COOPER,FEDERALPRACTICEAND PROCEDURE, § 4507,

at 89 (1982) ("[T]he federal court must determine issues of state law as it believes the highest court

ofthe state would determine them, not necessarily (although this usuallywillbe the case) asthey have

been decided by state courtsin the past"). Relying upon Harry David ZutzInsurance, Inc. v. H.M.S.

Associates, Ltd., 360 A.2d 160 (Del. 1976), in which the Delaware Superior Court interpreted an

analogous provision ofFlorida law to require strict compliance with statutory filing requirements, the

Commissioninferred that theDelaware court would strictlyinterpret theDelaware limited partnership

law. It therefore concluded that, as a matter of Delaware law, neither Cellwave nor Futurewave was

a limited partnership at the time that it filed its lottery applications.

The standard by which we should review this FCC interpretation of state law is not

immediately apparent. The parties do not address this question, however; they join issue directly

over Delaware law, which at least implies that our review is de novo, as it is when the agency has

decided an issue of federal law. The Tenth Circuit has deferred to an agency's "careful and studied

conclusions of law [state or federal] pertaining to a matter clearly within the agency's expertise." See

Railroad Commission of Texas v. Federal Energy Regulatory Commission, 874 F.2d 1338, 1344

(10th Cir. 1989); accord, Walker Operating Corp. v. Federal Energy Regulatory Commission, 874

F.2d 1320, 1332 (10th Cir. 1989); see also Levy v. Office of Personnel Management, 902 F.2d

1550, 1554 n.8 (Fed. Cir. 1990) ("No amount of deference can sustain a federal agency's

interpretation of state lawwhen, as here, the agency'sinterpretation isin direct conflict with decisions

of the state's highest court ....") (emphasis in original). The question whether a general partnership

has become a limited partnership prior to filing its certificate with the Secretary of State is, of course,

in no way related to the Commission's expertise in regulating communications bywire and radio. We

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have no occasion today, therefore, to accept or reject the Tenth Circuit's standard for deference.

A more general principle of administrative law counsels against our deferring to the

Commission in this case. Deference is appropriate when the agency has expertise in a particular area

or the Congress has entrusted the agency to administer a particular statute. See Chevron U.S.A. Inc.

v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). Neither condition obtains

here. Cf. Salve Regina College v. Russell, 111 S.Ct. 1217, 1221 (1991) (holding that a federal

appellate court must review de novo a district court'sinterpretation ofstate law). Therefore, we shall

address the question of Delaware law de novo.

As we have seen, Delaware statute law unambiguously providesthat "[a] limited partnership

is formed at the time of the filing of the initial certificate of limited partnership in the Office of the

Secretary of State ... if... there has been substantial compliance with the requirements ofthissection."

DEL. CODE ANN. tit. 6, § 17-201(b). To be sure, some state courts have held that a limited

partnership can come into existence under the ULPA without a certificate's actually being filed. In

those cases, however, the partyarguing against limited partnership statuswhether a general partner

attempting to dilute his liability or a third party who had dealt with the partnershiphad received

notice of the partnership's purportedly limited status. See, e.g., Shindler v. Marr & Associates, 695

S.W.2d 699, 702-03 (Tex. App. 1985) (discussing cases). In other words, they had accepted the

limitation of liability before dealing with the partnership; that the certificate had not been filed was

a fortuity from which they were seeking (unsuccessfully) to profit. Those cases are not relevant to

our present concern. Even in that context, moreover, many courts have interpreted the ULPA by its

terms to require strict adherence to the filing requirements. See, e.g., Deporter-Butterworth Tours,

Inc. v. Tyrrell, 503 N.E.2d 378, 384 (Ill.App. 1987) ("Until [the certificate] is filed, the partnership

is not formed as a limited partnership and all partners will be treated as general partners").

The petitioners point to no case that suggests that the Delaware Supreme Court would

recognize the legal status of their partnership even inter se. It is that much less likely to hold that

such a limited partnership would be valid not only among the partners but as between the partnership

and a third party. See, e.g, Grenada Bank v. Willey, 705 F.2d 176, 178 (6th Cir. 1983) ("Cases

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construing the ULPA are in accord that a failure to comply with the statutory requirements for

establishing a limited partnership, such as recording, does not void the creation of an association

between the partners, but does preclude those partners from claiming the status of limited partners

when dealing with third parties who are without notice of the limited liability due to a failure to

record") (emphasisin the original). If the partnership is not limited with respect to third parties, then

an alien partner could effectively direct the course of the partnership by entering into third party

contracts. Absent any indication to the contrary emanating from any Delaware court, we see no

reason to depart from the plain meaning of the Delaware statute, which clearly states that a limited

partnership is formed only when the certificate is filed. Cf. Hayward v. Gaston, 542 A.2d 760, 768

(Del. 1988)(Delaware courts give state statutes "literal construction" unlessthat construction "leaves

a result inconsistent with the generalstatutory intention"); Richardson v. Wile, 535 A.2d 1346, 1348

(Del. 1988) (same).

III. CONCLUSION

For the reasons set out above, we hold that the Commission properly rejected the Cellwave

and Futurewave applications to serve RSAs. The order of the Commission is therefore

Affirmed.

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