                                In the

United States Court of Appeals
                  For the Seventh Circuit

No. 11-2112

IN RE:

    F ORT W AYNE T ELSAT, INC.,
                                                       Debtor-Appellee.
A PPEAL OF:

    JAS P ARTNERS, L TD.


                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.



   A RGUED O CTOBER 17, 2011—D ECIDED N OVEMBER 23, 2011




  Before B AUER, P OSNER, and W OOD , Circuit Judges.
  P OSNER, 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 autho-
rized the university to broadcast on specified frequencies.
2                                               No. 11-2112

Licenses of ITFS frequencies are available only to not-for-
profit 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 (The ITFS program has been replaced
by EBS—the “Educational Broadband Service,” §§ 27.1200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 appel-
lant, 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 unre-
coverable costs incurred by the debtor to make the equip-
ment 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 third-
party 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 ex-
change 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 sup-
ported 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 uni-
versity’s license had never actually been assigned to PBS.
  Because, if the bankruptcy court approved the settle-
ment, 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 con-
ducted 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 opera-
tion of the doctrine of res judicata would have pre-
cluded any claim by JAS or the other unsecured credi-
tors 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 ap-
proving 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 ex-
ample 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 judg-
ment 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 intermedi-
ate 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 con-
tinuing 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 owner-
ship. 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 univer-
sity. 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 Televi-
sion Fixed Service frequency band was little used by
its licensees, because they were educational institutions
that lacked the resources to exploit broadcasting oppor-
tunities 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 unautho-
rized 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 equita-
ble 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 trans-
ferred 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 par-
ties’ lack of diligence presumably would be within
the Commission’s discretion. Florida Cellular Mobil Com-
munications 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 sug-
gestion 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 rea-
sonable 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 prob-
ability 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.
                                                A FFIRMED.

                          11-23-11
