In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2112

IN RE:

FORT WAYNE TELSAT, INC.,

Debtor-Appellee.

APPEAL OF:

JAS PARTNERS, LTD.

Appeal from the United States District Court

for the Northern District of Indiana, Fort Wayne Division.

No. 1:10-cv-00303-TLS—Theresa L. Springmann, Judge.

ARGUED OCTOBER 17, 2011—DECIDED NOVEMBER 23, 2011

Before BAUER, POSNER, and WOOD, Circuit Judges.

POSNER, Circuit Judge. This appeal requires us to

explore the duty of a trustee in bankruptcy to prosecute

uncertain claims for the recovery from third parties of

assets allegedly owned by the bankrupt estate.

Indiana University had what is called an “Instructional

Television Fixed Service” license, which had been issued

by the Federal Communications Commission and authorized the university to broadcast on specified frequencies.
2 No. 11-2112

Licenses of ITFS frequencies are available only to not-forprofit entities, such as the university, and mainly

enable the licensee to broadcast educational materials to

high schools and branch campuses within a 35-mile

radius of the licensee’s transmitter. See 47 C.F.R.

§ 74.903(a)(5) (2003). (The ITFS program has been replaced

by EBS—the “Educational Broadband Service,” §§ 27.1200

et seq.—but it appears to be similar. See §§ 27.1214 (a)(1),

(d).) But a licensee who doesn’t use all the frequencies

that it’s authorized to use can lease the unused ones

to a for-profit entity.

Enter the parties. The debtor (that is, the bankrupt), Fort

Wayne Telsat, was a television broadcaster in Indiana.

Its principal unsecured creditor was (and is) the appellant, JAS Partners, Ltd., which was owed 85 percent of the

total amount owed to the unsecured creditors. JAS’s

general partner, James A. Simon, is the debtor’s founder

and president. It is unclear just what JAS Partners does

besides “funneling funds from other corporate entities

to Mr. and Mrs. Simon for their personal use under the

guise of loans to avoid tax consequences.” United

States v. Simon, No. 3:10-CR-00056(01)RM, 2011 WL

924264, at *2-3 (N.D. Ind. Mar. 14, 2011). Both the debtor

and JAS are for-profit enterprises.

The university had agreed to transfer its license to

another not-for-profit broadcaster, the Fort Wayne

Public Broadcasting Service (which the parties call PBS).

The FCC was contemplating “use it or lose it” regulations

that would divest ITFS licensees of their licenses if

they broadcast less than a specified minimum amount
No. 11-2112 3

of educational programming, and the university didn’t

think it could satisfy the new requirement and preferred

to assign its license to PBS for nothing than lose it to

the FCC. In anticipation of the assignment, PBS had

agreed to lease to the debtor a substantial portion of the

broadcasting rights conferred by the license. (Later PBS

“quitclaimed its rights under the license to the debtor.)

Such a lease would be an asset of the debtor, and would

thus increase the amount of money that JAS could

expect to receive as the debtor’s principal unsecured

creditor.

The university denied that it had transferred its

license to PBS. But believing that the transfer had gone

through or would go through, the debtor modified

broadcasting equipment at a cost of $350,000. The

trustee in bankruptcy filed a claim against the university

contending that it had promised PBS the license, that

the debtor had reasonably relied on the promise in

making the equipment modifications, and that the

doctrine of promissory estoppel entitled the debtor to

damages of $116,000—the trustee’s estimate of the unrecoverable costs incurred by the debtor to make the equipment modifications relating to the anticipated license.

The debtor was not a promisee, that is, was not a party

to the yet-to-be performed contract between the university

and PBS to transfer the license. But PBS’s contingent

lease to the debtor had made the debtor an intended thirdparty beneficiary of that contract, a relationship that can

support a claim of promissory estoppel. First Nat’l Bank

of Logansport v. Logan Mfg. Co., 577 N.E.2d 949, 954 (Ind.
4 No. 11-2112

1991); Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902

(2009); Vidimos, Inc. v. Laser Lab Ltd., 99 F.3d 217, 222 (7th

Cir. 1996) (Indiana law); Restatement (Second) of Contracts

§ 90, comment c (1981). Anyway, though promissory

estoppel is mainly a doctrine of contract law that allows

reasonable reliance to be substituted for the normal

requirement that to be enforceable a promise be in exchange for consideration (though the consideration

could consist just of a reciprocal promise), it is sometimes

applied to promises that would not be enforceable

under contract-law principles even if they were supported by consideration. Garwood Packaging, Inc. v. Allen

& Co., 378 F.3d 698, 702-04 (7th Cir. 2004) (Indiana law).

Whether the trustee’s promissory estoppel claim was

strong or weak, the university settled it for $100,000. But

the trustee did not obtain as part of the settlement (or

even seek) the assignment of the license to the debtor.

He had concluded that although PBS had quitclaimed

its interest in the license to the debtor (or as much of

the interest as the law permitted it to quitclaim), the

quitclaim had conveyed nothing because the university’s license had never actually been assigned to PBS.

Because, if the bankruptcy court approved the settlement, the debtor’s estate would have insufficient assets

to pay the unsecured creditors, JAS asked the court to

reject it. See Fed. R. Bankr. P. 2002(a)(3), 9019(a); Protective

Committee for Independent Stockholders of TMT Trailer

Ferry, Inc. v. Anderson, 390 U.S. 414, 424-25, 434 (1968);

National Surety Co. v. Coriell, 289 U.S. 426, 436-37 (1933)

(Brandeis, J.); In re Doctors Hospital of Hyde Park, Inc., 474
No. 11-2112 5

F.3d 421, 425-26 (7th Cir. 2007). It argued that the trustee

had failed to use due care to maximize the assets of the

debtor’s estate; he had not adequately investigated

the possibility of obtaining the license, which JAS

estimates to be worth $4.1 million, as that was the

amount the university had been offered earlier for it.

That’s much too high an estimate of the value that the

license would have to the debtor. To acquire any rights

under the license, the debtor first would have had to

find a nonprofit entity to be the licensee, would have

had to secure the FCC’s approval of the assignment

of the license to PBS (a protracted process if the

university resisted), and would have been entitled only

to use so much of the licensed frequency band as the

licensee did not use. And $4.1 million was a price that

had been offered for the license as a part of a package

of licenses, and bundles of such licenses are more

valuable than the sum of the prices of the licenses if

sold separately. Moreover, it was a price that had been

offered to the university months before the settlement,

and during the interval the prices of such licenses had

plummeted, having spiked earlier only because of a

contemplated merger among ITFS licensees each seeking

to enlarge its broadcasting rights as a way of gaining

leverage in merger negotiations.

In the face of these considerations, the trustee

estimated the value of the license to the debtor to be

only $600,000, and that was a reasonable estimate. It is

not a negligible amount of money and so he considered

pressing the theory that PBS was the real owner of the
6 No. 11-2112

license and so could assign rights encompassed by it.

But after investigating, and receiving a certificate

from the FCC stating that the license was owned by

the university, he decided to abandon the theory. JAS

opposed abandonment but the bankruptcy judge conducted a hearing and concluded that the trustee had

acted prudently in settling the debtor’s entire claim

against the university for $100,000. The district judge

agreed, precipitating JAS’s appeal to us. 

JAS contends that if only the trustee had spent a mere

$20,000 on pretrial discovery, he would have learned that,

despite the certificate from the FCC, PBS did have a valid

claim to the license after all and that the license really

was worth $4.1 million to JAS (this we know is not

true), and he could have sued the university for that

amount (or asked for specific performance—an order

that the university transfer the license to PBS for the

benefit of JAS) and had he done so would have obtained

a favorable judgment.

Rather than taking the circuitous route of challenging

the settlement, JAS could at the outset have asked the

trustee to assign the debtor’s rights against the university

to JAS and the other unsecured creditors rather than

litigating them himself. An FCC license is an assignable

asset of a debtor’s estate, Midtown Chiropractic v. Illinois

Farmers Ins. Co., 847 N.E.2d 942, 944-45 (Ind. 2006); In re Tak

Communications, Inc., 985 F.2d 916, 918 (7th Cir. 1993),

provided the FCC consents to the assignment. 47 U.S.C.

§ 310(d); In re Central Arkansas Broadcasting Co., 68

F.3d 213, 214-15 (8th Cir. 1993) (per curiam). But this
No. 11-2112 7

route was blocked by the settlement, which by operation of the doctrine of res judicata would have precluded any claim by JAS or the other unsecured creditors against the university that arose out of the dispute

over the license, since an assignee of a claim (which

would have been JAS) is in privity with the assignor (the

debtor, represented by the trustee). Taylor v. Sturgell, 553

U.S. 880, 894 and n. 8 (2008); Perry v. Globe Auto Recycling,

Inc., 227 F.3d 950, 953 (7th Cir. 2000); Restatement (Second)

of Judgments § 55(1) (1982). So JAS had to proceed as it

did—had to try to get the settlement set aside on the

ground that the bankruptcy judge had erred in approving it because the trustee had fallen down on the job.

There is no novelty in requiring that a judge

determine the reasonableness of a settlement; for example it is required in class actions (Fed. R. Civ. P. 23(e))

because of the potential conflict of interest between

the class members and class counsel. See, e.g, Thorogood

v. Sears, Roebuck & Co., 547 F.3d 742, 744-45 (7th Cir.

2008). Determining the reasonableness of a settlement

requires comparing the amount of the settlement to the

net expected gain of seeking a litigated judgment. The

“expected gain” is the gain if the judgment is favorable,

discounted (that is, multiplied) by the probability of a

favorable judgment. The qualification “net” signals the

need to subtract the cost of pressing ahead to judgment

in order to estimate the value of litigating to judgment rather than of settling. Suppose the settlement is

$1 million, and a litigated judgment favorable to the

plaintiff would be $4 million but the probability of ob-
8 No. 11-2112

taining the judgment would have been only 10 percent

and the cost of obtaining it (the litigation cost) $100,000.

Then the net expected gain from litigating to judgment

would have been only $300,000 ($4 million x .10 = $400,000;

$400,000 – $100,000 = $300,000)—much lower than the

$1 million settlement. And so the settlement would be

reasonable.

We are simplifying; we haven’t considered intermediate possibilities between a judgment of $4 million (or

more) and a judgment of $0, or the possibility of the

plaintiff’s obtaining an even better settlement by continuing to litigate for a time, or the plaintiff’s risk

aversion or risk preference, or the difficulty of attaching

exact probabilities to inherently uncertain events, or the

cost of negotiating a settlement in lieu of litigation. But

though simplistic, our example should suffice to indicate

the basic analysis required to determine whether an

amount accepted in settlement of a claim is reasonable.

Essentially the trustee decided that pursuing a claim

for the license (that is, for a determination that PBS was

the owner of the license, not the university, and that

the debtor was entitled to a big chunk of it by virtue of its

quitclaim deed from PBS) was hopeless: the net expected

gain was close to zero, given the certificate issued by the

FCC, which confirmed the university’s continued ownership. If that was a reasonable decision for the trustee to

make, his refusal to invest in a further investigation

was also reasonable—especially since he would have had

to reject the settlement and thus kiss the $100,000 that

it had added to the debtor’s estate goodbye. And the
No. 11-2112 9

settlement had been a steal: the trustee had estimated the

promissory estoppel claim to be worth only $35,000

(JAS has not questioned that estimate) and had gotten

almost three times that amount. The multiple may have

reflected the cost the university would have had to incur

to defend against the claim, but the fact remains that

$100,000 gave the debtor’s estate a windfall.

It’s not as if the question of the debtor’s rights, if any,

under the university’s license were straightforward. The

university had wanted to assign the license to PBS—that

much is clear. Indeed it had agreed to do so. That was

the basis of the debtor’s promissory estoppel claim—that

in making the equipment modifications that it would

need in order to be able to broadcast on the frequencies

that PBS would not be using the debtor had acted in

reasonable reliance on the university’s promise to assign

the license to PBS. The university had even submitted

an application to the FCC to assign the license to PBS.

That was back in 1994 but the FCC had dawdled in acting

on the application. (It has never acted on it, as we’ll see.)

Later the university had authorized PBS to file with

the FCC an application for a license to modify PBS’s

broadcasting facilities to enable their use by the debtor,

pursuant to PBS’s conditional lease of excess capacity

to the debtor. PBS had intended to use the occasion

of applying to the FCC for the modification license to

renew the application for assignment of the broadcast

license on the basis of PBS’s agreement with the university. But it failed to check a box on the application form

that would have indicated that it was applying for the
10 No. 11-2112

broadcast license and not just for permission to modify

equipment. The FCC interpreted the omission to mean

that the application originally submitted by the university

to assign the license to PBS was being abandoned, and so

it stopped processing the application. (It granted PBS’s

application for modification—the basis for the debtor’s

promissory estoppel claim because the modification

was made and paid for by the debtor rather than by

PBS.) As a result, the assignment of the license was

never approved by the FCC and so PBS never had to

honor its lease to the debtor of the excess capacity that

the license would have given PBS.

The parties’ insouciance regarding the assignment of

the license may be attributable to its having had little

value when the university and PBS made their deal, and

indeed until recently. In 1994 the Instructional Television Fixed Service frequency band was little used by

its licensees, because they were educational institutions

that lacked the resources to exploit broadcasting opportunities effectively. But since 2003 a company named

Clearwire has used ITFS (now EBS) excess-capacity

leases to create a national wireless broadband network

(used by Sprint’s smartphones) to provide cellular

and Internet service. (For background on Clearwire,

see www.clearwire.com/company/our-network, visited

Nov. 6, 2011.) As a result, such leases have become

much more valuable than they were.

As an alternative to its contention that PBS had

acquired the university’s lease, JAS argues that the debtor

acquired, through PBS’s quitclaim deed to it, the latter’s
No. 11-2112 11

contractual right to compel the university to transfer

the license—the deed substituted the debtor for PBS. But

the FCC must approve the assignment of a broadcast

license, 47 U.S.C. § 310(d), and it could not approve the

assignment of an Instructional Television Fixed Service

license to an enterprise that, being for-profit, was not

legally authorized to receive such a license. An unauthorized assignment would not be in the “public interest,” the

statutory criterion for the Commission’s approving

the assignment of a broadcast license. FCC v. WNCN

Listeners Guild, 450 U.S. 582, 593-94 (1981); M2Z Networks,

Inc. v. FCC, 558 F.3d 554, 558 (D.C. Cir. 2009).

We can imagine an argument that despite its failing to

check the assignment-application box, PBS was the equitable owner of the broadcasting rights conferred by

the university’s license, and that the university was

unjustly enriched by being able to lease to Clearwire (or

anyone else) the excess broadcast capacity that “should”

have been PBS’s to lease to the debtor. The FCC’s records

of broadcast licenses are a mess and the Commission

could, we assume, deem a license to have been transferred with its approval despite the parties’ failure to

follow required formalities; we haven’t been pointed to

any statutory or regulatory provision that would forbid

such an exercise of administrative discretion. But the

Commission might well be unforgiving of PBS’s failure

to check the right box, and of the generally lackadaisical

manner in which the university and PBS had attempted

to transfer the license. A denial on the basis of the parties’ lack of diligence presumably would be within

the Commission’s discretion. Florida Cellular Mobil Communications Corp. v. FCC, 28 F.3d 191, 200 (D.C. Cir. 1994);
12 No. 11-2112

Royce Int’l Broadcasting Co. v. FCC, 820 F.2d 1332, 1336-

37 (D.C. Cir. 1987).

Anyway we don’t understand this to be JAS’s theory,

and it would be far-fetched. The university tried to

assign its license to PBS in 1994, but the assignment had

as we know to be approved by the FCC, and it was not

approved, and this was not the university’s fault. So,

stuck with the license, the university was entitled to

lease the excess broadcasting capacity that the license

had given it—yet the university, not the FCC, would be

the defendant under the theory that we’ve just outlined,

just as it is under the theory that JAS is pressing.

That theory (insofar as we understand it, which we

may not, because it isn’t clearly articulated) is that the

FCC did approve the assignment, though it has said it

didn’t, and that if the trustee had rummaged in the

FCC’s files it would have found the approval. The suggestion is unappealing. If disgruntled broadcasters can

peer behind certificates issued by the FCC attesting the

existence of a license, an important class of property

rights will be unsettled. JAS has never indicated what

the legal basis for challenging such certificates might

be and we cannot think of any that would be applicable

to this suit.

JAS has, it is true, managed to find documents in which

the FCC calls PBS the licensee. Maybe the trustee would

have found more through discovery. But the certificate

issued by the Commission, which states that the university

is the license holder listed in the FCC’s public license

registry, is, as far as we are informed, definitive evidence

of the ownership of the license, even if the Commission
No. 11-2112 13

may earlier have been confused about who the license

holder was. Crawford v. FCC, 417 F.3d 1289, 1297 (D.C. Cir.

2005); Oregon v. FCC, 102 F.3d 583, 586 (D.C. Cir. 1996).

And to repeat a previous point, were PBS the licensee,

still the FCC could not approve the transfer of its license

to an entity forbidden by law to hold the license: the

debtor, a for-profit enterprise.

And remember that the license wasn’t actually worth

$4.1 million—that the trustee estimated its value to the

debtor to be only $600,000 and that this was a reasonable estimate. He thought the probability that a

claim to those rights would succeed was zero, but even

if it were much higher it still wouldn’t have been

worth pursuing. Litigation is expensive! If the probability of the trustee’s prevailing on such a claim were

50 percent (much too high, in light of our analysis),

the expected gain from pressing the claim would

be $300,000, but that would be gross rather than net.

The $100,000 received in settlement would be gone,

leaving an expected gain from litigating of $200,000. It

is unlikely that a complex commercial litigation could

be conducted for less than that amount of money and

therefore the net gain (the gross expected gain minus

litigation expense) would be unlikely to exceed $100,000

and might well be negative.

The bankruptcy judge and the district judge got it

right: the trustee had acted reasonably in settling the

debtor’s claim against the university for $100,000.

AFFIRMED.

11-23-11