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NextWave Ruling Spells Victory and Defeat
When the government is a creditor, it cannot exercise self-help remedies that may be consistent with regulatory policies but are in violation of the specific provisions of the Bankruptcy Code, 11 U.S.C. ” 101 et seq. In Federal Communications Comm'n v. NextWave Personal Communications, Inc., No. 01-653, 2003 U.S. LEXIS 1059, at *7-8, 71 U.S.L.W. 4085 (Jan. 27, 2003), the Supreme Court held that Bankruptcy Code Section 525, which prohibits a governmental unit from revoking a license to a debtor in bankruptcy, prevents the Federal Communications Commission (FCC) from revoking spectrum licenses that were bought on credit, but not paid for when due by NextWave Personal Communications, Inc. (NextWave). The Court rejected the FCC policy arguments as irrelevant to its considerations. For spice, the Majority almost scoffed at Justice Breyer's dissenting opinion that the ruling could be interpreted to prevent a government licensor from ever revoking a license to a debtor in bankruptcy.
The Court's decision should end what has become a seemingly never-ending war between NextWave and the FCC. Although this war may be over, bankruptcy court jurisdiction was a major casualty of the campaign waged in the Second Circuit Court of Appeals. As discussed later in this article, NextWave's initial battles were twice fought in the Bankruptcy Court for the Southern District of New York, with the outcome ultimately determined by the Second Circuit. It held, not once but twice, that the Bankruptcy Court lacks jurisdiction to over-rule what it determined to be regulatory actions taken by the FCC (see accompanying article, this page). The Supreme Court's decision did not result from an appeal of the Second Circuit's decisions. Instead, the decision arose from NextWave's appeal to the United States Court of Appeals for the District of Columbia (D.C. Circuit). In the D.C. Circuit, NextWave challenged the FCC's denial of its application for reconsideration of the license revocation under the Administrative Procedures Act. The Supreme Court held that the Second Circuit decision was only jurisdictional and, therefore, NextWave's bankruptcy arguments could be re-litigated in the D.C. Circuit.
The NextWave jurisdictional determinations raise an important query: In future bankruptcy cases where the FCC exercises an alleged regulatory power that is in direct conflict with the Bankruptcy Code, does the bankruptcy court have the jurisdiction to resolve the dispute? For example, Section 214(a) of the Communications Act, 47 U.S.C. ” 151, et seq. requires a telecommunications provider to obtain a certificate from the FCC that the public convenience will not be adversely affected before service may be terminated. Can the FCC prevent a telecom provider from discontinuing service caused by a debtor's rejection of an executory contract under Section 365 of the Bankruptcy Code? Can the bankruptcy judge decide this issue? Especially in the Second Circuit, a telecom debtor may have to run its bankruptcy case parallel to FCC regulatory proceedings.
The FCC As a Regulator
While the FCC has power and authority over the communications industry, once a communications provider files for bankruptcy protection, the bankruptcy court has jurisdiction over property of the debtor's estate. The bankruptcy court is primarily concerned with preserving the value of the debtor's assets in order to maximize distributions to the debtor's creditors. The FCC, on the other hand, is primarily concerned with preserving the public's confidence in the communications industry and ensuring that regulations are followed. These policies ultimately collide when a communications carrier files for bankruptcy protection. The jurisdictional disputes between the bankruptcy court and the FCC have been revealed in several types of cases, one of which involved NextWave.
In 1993, Congress amended the Communications Act of 1934 to authorize the FCC to award spectrum licenses 'through a system of competitive bidding.' 48 Stat. 1085, as amended 107 Stat. 387, 47 U.S.C. ' 309(j)(1) (2000). It directed the Commission to 'promot[e] economic opportunity and competition' and 'avoi[d] excessive concentration of licenses' by 'disseminating licenses among a wide variety of applications, including small businesses [and] rural telephone companies.' 47 U.S.C. ' 309(j)(3)(B) (2000). To this end, Congress directed the FCC to 'consider alternative payment schedules and methods of calculation, including lump sums or guaranteed installment payments ' or other schedules or methods '.' 47 U.S.C. ' 309(j)(4)(A) (2000). Pursuant to this authority, the FCC auctioned off a group known as 'C-block licenses' for providing personal communications services.
The FCC As a Secured Creditor
NextWave was the successful bidder on 63 licenses, with a bid of $4.74 billion, payable in installments over 10 years. In accordance with FCC regulations, NextWave made a down payment on the purchase price, signed promissory notes for the balance, and executed security agreements. The FCC perfected its security interest in the licenses by filing financing statements under the Uniform Commercial Code. The security agreements gave the Commission a first 'lien on and continuing security interest in all of the Debtor's rights and interest in [each] License.' In addition, the licenses recited that they were 'conditioned upon the full and timely payment of all monies due pursuant to ' the terms of the Commission's installment plan as set forth in the Note and Security Agreement executed by the licensee,' and that '[f]ailure to comply with this condition will result in the automatic cancellation of this authorization.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *7-8.
The Litigation Begins: Policy and Jurisdictional Disputes
Round One ' Fraudulent Transfer
By the time the licenses were delivered to NextWave in 1997, the value of the licenses had fallen to approximately 25% of what it had bid. As a result, NextWave was unable to secure financing for the purchase of the licenses. When restructuring negotiations with the FCC failed, NextWave filed a Chapter 11 bankruptcy petition and filed a complaint against the FCC claiming that the auction constituted a fraudulent transfer, which was avoidable under section 544 of the Bankruptcy Code.
The Second Circuit botches bankruptcy law and jurisdiction
In NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications Inc.), 235 B.R. 277 (Bankr. S.D.N.Y. 1999) aff'd, 241 B.R. 311 (S.D.N.Y. 1999), both the bankruptcy court and the district court held that the conveyance was fraudulent, and reduced NextWave's obligation to equal the market value of the licenses at the time they were delivered in 1997. In FCC v. Next Wave Personal Communications, Inc. (In re NextWave Personal Communications, Inc.), 200 F.3d 43 (2d Cir. 1999), the Second Circuit overturned the lower court opinions, finding that the FCC was implementing a regulatory policy in performing a function over which it had exclusive control under federal law. Specifically, the auction system was a statutorily mandated method of license allocation that depended on market forces to determine the most qualified recipient. The Second Circuit held that the lower courts erred and essentially 'exercised the FCC's radio-licensing function,' without the jurisdiction to do so. Id at 55.
Round Two ' Stay Violations and Return to the Second Circuit
After the Second Circuit's reversal of the lower courts, NextWave amended its plan of reorganization to provide for full payment of the bid price. However, the FCC now argued that NextWave had no ability to pay for the licenses because they terminated automatically when NextWave failed to make its first payment. The FCC set the NextWave licenses for re-auction and ultimately sold the licenses to other bidders. NextWave requested that the bankruptcy court find that such actions were taken in violation of the automatic stay, which resulted in In re NextWave Personal Communications, Inc., 244 B.R. 253 (Bankr. S.D.N.Y. 2000). In this opinion, the bankruptcy court held that the FCC's cancellation of the licenses was a violation of the automatic stay, and therefore, not effective.
The FCC filed a mandamus petition to the Second Circuit, claiming that the bankruptcy court had violated the Second Circuit's prior holding. In In re FCC, 217 F.3d 125 (2d Cir. 2000), the Second Circuit held that the cancellation was an effective use of the FCC's regulatory authority and therefore, not in violation of the automatic stay. The Second Circuit also held that the FCC's re-auction decision was regulatory, and that the bankruptcy court ruling had violated the appellate court's earlier mandate and exceeded the bankruptcy court's jurisdiction. NextWave, 254 F.3d at 139. In other words, the FCC's actions with respect to NextWave's licenses were 'subject to the exclusive jurisdiction of the federal courts of appeals.' In re FCC, 217 F.3d at 129.
Round Three ' Administrative Procedure and Appeal to the D.C. Circuit
After the Second Circuit found for a second time that the Bankruptcy Court lacked jurisdiction to modify the FCC's regulatory actions, NextWave filed a petition with the FCC, requesting reconsideration of the license cancellation. The FCC rejected, inter alia, NextWave's argument that the cancellation was arbitrary and capricious. The FCC then held that the Second Circuit's holding precluded NextWave from raising any Bankruptcy Code arguments under the doctrine of res judicata. Communications Act Section 402(b) provides that appeals from the decision of the FCC may be taken to the D.C. Circuit, 47 U.S.C. ' 402(b)(2000). NextWave's appeal to the D.C. Circuit argued that license cancellation was 'patently unlawful' under Bankruptcy Code Sections 362 (automatic stay), 525 (anti-discrimination) and 1123 (cure of defaults). NextWave Personal Communications, Inc. v. FCC, 254 F.3d 130 (D.C. Cir. 2001), cert. granted, 535 U.S. 904 (2002). The D.C. Circuit applied 'the fundamental principle that federal agencies must obey all federal laws, not just those they administer,' and concluded that 'the Commission violated the provision of the Bankruptcy Code [' 525] that prohibits governmental entities from revoking debtors' licenses solely for failure to pay debts dischargeable in bankruptcy.' Id at 133. 'The Commission, having chosen to create standard debt obligations as part of its licensing scheme, is bound by the usual rules governing the treatment of such obligations in bankruptcy.' Id The D.C. Circuit felt that these claims had not been previously decided because 'the Second Circuit's opinion was jurisdictional and that claim preclusion does not bar NextWave from re-litigating its Bankruptcy Code arguments in this court.' Id at 147. However, due to its substantive holding under Bankruptcy Code Section, the D.C. Circuit determined that it did not have to consider NextWave's other Bankruptcy Code arguments. At the FCC's request, the Supreme Court granted certiorari in this case.
The Supreme Court Decision
The Supreme Court upheld the D.C. Circuit's decision because the Administrative Procedure Act requires federal courts to set aside federal agency actions that are 'not in accordance with law,' including the Bankruptcy Code. 5 U.S.C. ' 506(2)(A) (2000). In this case, the FCC's revocation was not in accordance with Section 525 of the Bankruptcy Code which provides in relevant part: '[A] governmental unit may not ' revoke ' a license ' to ' a person that is ' a debtor under this title ' solely because such ' debtor ' has not paid a debt that is dischargeable in the case under this title ” 11 U.S.C. ' 525 (2000) [emphasis added]. However, the FCC argued that it did not revoke NextWave's licenses 'solely because' of non-payment, and that NextWave's obligations to pay for the licenses are not 'dischargeable' 'debts' within the meaning of the Bankruptcy Code. The FCC argued that it 'had a valid regulatory motive' for the cancellation. The Court held that the words 'solely because' cannot reasonably be understood to include the FCC's motive for cancellation. To do so would deprive Section 525 of all of its force. 'Section 525 means nothing more or less than that the failure to pay a dischargeable debt must alone be the proximate cause of the cancellation ' the act or event that triggers the agency's decision to cancel, whatever the agency's ultimate motive in pulling the trigger may be.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *15-16.
In addition, the FCC argued that 'regulatory conditions like the full and timely payment condition are not properly classified as 'debts” under the Bankruptcy Code. Id at *17. In other words, the 'financial nature of a condition on a license does not convert that condition into a debt.' Id at *18. The Court rejected this argument because the Bankruptcy Code definition of a 'debt' means 'liability on a claim,' 11 U.S.C. ' 101(12) and 'claim,' in turn, includes any 'right to payment,' 11 U.S.C. ' 101(5)(A). 'In short, a debt is a debt, even when the obligation to pay it is also a regulatory condition.' Id The Court also rejected the FCC's argument that the obligations are not dischargeable in bankruptcy because they are beyond the jurisdictional authority of the court to alter or modify regulatory obligations. 'The court found that dischargeability is not tied to the existence of jurisdictional authority.' Id at *19. Accordingly 'confirmation of a plan [of reorganization] ' discharges the debtor from any debt that arose before the date of such confirmation unless it falls within an expressed exception to the discharge.' Id
Finally, the Court found that its holding did not create a conflict with the Communications Act obstructing the FCC's authority to conduct auctions of spectrum licenses, since nothing in 47 U.S.C. ' 309(j) demanded cancellation of a license as a sanction for failure to make installment payments. 'What petitioners described as a conflict boils down to nothing more than a policy preference on the FCC's part for 1) selling licenses on credit, and 2) canceling licenses rather than asserting security interest in licenses when there is a default. Such administrative preferences cannot be the basis for denying respondents rights provided by the plain terms of a law. '[W]hen two statutes are capable of coexistence, there is the duty of the courts, absent poorly expressed congressional intention to the contrary, to regard each as effective.” Id at *20-21. Since Section 525 specifically prevents the Commission's permissible action, the FCC's revocation of NextWave's licenses is not in accordance with law. See 5 U.S.C. ' 706 (2000).
The Dissent
In his lone dissent, Justice Breyer believed that the Court should have vacated the D.C. Circuit's judgment and remanded the matter for further proceedings. This would have allowed the FCC the opportunity to show that revocation was not 'solely' because of the debt's dischargeability, but because the debtor failed to make an installment payment and that the FCC had a right to enforce its security interest against the license. Justice Breyer was concerned that the Majority's literal interpretation of Section 525 could, in turn, be interpreted to mean that 'a government cannot ever enforce a lien on property that it has sold on the installment plan as long as 1) the property is a license, 2) the buyer has gone into bankruptcy, and 3) the government wants the license back solely because the debtor did not pay for it.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *33.
In its opinion, the Majority was critical of Justice Breyer's concern. The Majority felt that the Dissent's interpretation would render Section 525 superfluous, and that Congress meant what it said: 'The government is not to revoke the bankruptcy debtor's license solely because of a failure to pay his debts.' Id at *26. The Court found that the enforcement of the FCC's security interest in the bankruptcy process was not at issue, but the elimination of the licenses through the regulatory step of 'revoking' them in direct violation of Section 525 was. Id at *27.
Conclusion
In no uncertain terms, the Supreme Court has reminded federal agencies that they must obey all federal laws, including the Bankruptcy Code. In NextWave, the FCC exercised its regulatory authority by selling spectrum licenses. However, by selling the licenses on credit it became a creditor that is unable to enforce its default remedies against a bankruptcy debtor in violation of the Bankruptcy Code. However, it is troublesome that the case's procedural history did not allow the Court to find that bankruptcy courts have jurisdiction to resolve conflicts between the FCC actions and Bankruptcy Code provisions that were at issue in the Second Circuit decisions. Especially in the Second Circuit, it would seem that telecom debtors must run their bankruptcy cases in parallel with FCC administrative proceedings.
Robert P. Simons is a partner in the Pittsburgh, PA office of Reed Smith, LLP. Simons chairs the Technology-Oriented Bankruptcies Subcommittee of the ABA Business Bankruptcy Committee.
When the government is a creditor, it cannot exercise self-help remedies that may be consistent with regulatory policies but are in violation of the specific provisions of the Bankruptcy Code, 11 U.S.C. ” 101 et seq. In Federal Communications Comm'n v. NextWave Personal Communications, Inc., No. 01-653, 2003 U.S. LEXIS 1059, at *7-8, 71 U.S.L.W. 4085 (Jan. 27, 2003), the Supreme Court held that Bankruptcy Code Section 525, which prohibits a governmental unit from revoking a license to a debtor in bankruptcy, prevents the Federal Communications Commission (FCC) from revoking spectrum licenses that were bought on credit, but not paid for when due by NextWave Personal Communications, Inc. (NextWave). The Court rejected the FCC policy arguments as irrelevant to its considerations. For spice, the Majority almost scoffed at Justice Breyer's dissenting opinion that the ruling could be interpreted to prevent a government licensor from ever revoking a license to a debtor in bankruptcy.
The Court's decision should end what has become a seemingly never-ending war between NextWave and the FCC. Although this war may be over, bankruptcy court jurisdiction was a major casualty of the campaign waged in the Second Circuit Court of Appeals. As discussed later in this article, NextWave's initial battles were twice fought in the Bankruptcy Court for the Southern District of
The NextWave jurisdictional determinations raise an important query: In future bankruptcy cases where the FCC exercises an alleged regulatory power that is in direct conflict with the Bankruptcy Code, does the bankruptcy court have the jurisdiction to resolve the dispute? For example, Section 214(a) of the Communications Act, 47 U.S.C. ” 151, et seq. requires a telecommunications provider to obtain a certificate from the FCC that the public convenience will not be adversely affected before service may be terminated. Can the FCC prevent a telecom provider from discontinuing service caused by a debtor's rejection of an executory contract under Section 365 of the Bankruptcy Code? Can the bankruptcy judge decide this issue? Especially in the Second Circuit, a telecom debtor may have to run its bankruptcy case parallel to FCC regulatory proceedings.
The FCC As a Regulator
While the FCC has power and authority over the communications industry, once a communications provider files for bankruptcy protection, the bankruptcy court has jurisdiction over property of the debtor's estate. The bankruptcy court is primarily concerned with preserving the value of the debtor's assets in order to maximize distributions to the debtor's creditors. The FCC, on the other hand, is primarily concerned with preserving the public's confidence in the communications industry and ensuring that regulations are followed. These policies ultimately collide when a communications carrier files for bankruptcy protection. The jurisdictional disputes between the bankruptcy court and the FCC have been revealed in several types of cases, one of which involved NextWave.
In 1993, Congress amended the Communications Act of 1934 to authorize the FCC to award spectrum licenses 'through a system of competitive bidding.' 48 Stat. 1085, as amended 107 Stat. 387, 47 U.S.C. ' 309(j)(1) (2000). It directed the Commission to 'promot[e] economic opportunity and competition' and 'avoi[d] excessive concentration of licenses' by 'disseminating licenses among a wide variety of applications, including small businesses [and] rural telephone companies.' 47 U.S.C. ' 309(j)(3)(B) (2000). To this end, Congress directed the FCC to 'consider alternative payment schedules and methods of calculation, including lump sums or guaranteed installment payments ' or other schedules or methods '.' 47 U.S.C. ' 309(j)(4)(A) (2000). Pursuant to this authority, the FCC auctioned off a group known as 'C-block licenses' for providing personal communications services.
The FCC As a Secured Creditor
NextWave was the successful bidder on 63 licenses, with a bid of $4.74 billion, payable in installments over 10 years. In accordance with FCC regulations, NextWave made a down payment on the purchase price, signed promissory notes for the balance, and executed security agreements. The FCC perfected its security interest in the licenses by filing financing statements under the Uniform Commercial Code. The security agreements gave the Commission a first 'lien on and continuing security interest in all of the Debtor's rights and interest in [each] License.' In addition, the licenses recited that they were 'conditioned upon the full and timely payment of all monies due pursuant to ' the terms of the Commission's installment plan as set forth in the Note and Security Agreement executed by the licensee,' and that '[f]ailure to comply with this condition will result in the automatic cancellation of this authorization.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *7-8.
The Litigation Begins: Policy and Jurisdictional Disputes
Round One ' Fraudulent Transfer
By the time the licenses were delivered to NextWave in 1997, the value of the licenses had fallen to approximately 25% of what it had bid. As a result, NextWave was unable to secure financing for the purchase of the licenses. When restructuring negotiations with the FCC failed, NextWave filed a Chapter 11 bankruptcy petition and filed a complaint against the FCC claiming that the auction constituted a fraudulent transfer, which was avoidable under section 544 of the Bankruptcy Code.
The Second Circuit botches bankruptcy law and jurisdiction
In NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications Inc.), 235 B.R. 277 (Bankr. S.D.N.Y. 1999)
Round Two ' Stay Violations and Return to the Second Circuit
After the Second Circuit's reversal of the lower courts, NextWave amended its plan of reorganization to provide for full payment of the bid price. However, the FCC now argued that NextWave had no ability to pay for the licenses because they terminated automatically when NextWave failed to make its first payment. The FCC set the NextWave licenses for re-auction and ultimately sold the licenses to other bidders. NextWave requested that the bankruptcy court find that such actions were taken in violation of the automatic stay, which resulted in In re NextWave Personal Communications, Inc., 244 B.R. 253 (Bankr. S.D.N.Y. 2000). In this opinion, the bankruptcy court held that the FCC's cancellation of the licenses was a violation of the automatic stay, and therefore, not effective.
The FCC filed a mandamus petition to the Second Circuit, claiming that the bankruptcy court had violated the Second Circuit's prior holding. In In re FCC, 217 F.3d 125 (2d Cir. 2000), the Second Circuit held that the cancellation was an effective use of the FCC's regulatory authority and therefore, not in violation of the automatic stay. The Second Circuit also held that the FCC's re-auction decision was regulatory, and that the bankruptcy court ruling had violated the appellate court's earlier mandate and exceeded the bankruptcy court's jurisdiction. NextWave, 254 F.3d at 139. In other words, the FCC's actions with respect to NextWave's licenses were 'subject to the exclusive jurisdiction of the federal courts of appeals.' In re FCC, 217 F.3d at 129.
Round Three ' Administrative Procedure and Appeal to the D.C. Circuit
After the Second Circuit found for a second time that the Bankruptcy Court lacked jurisdiction to modify the FCC's regulatory actions, NextWave filed a petition with the FCC, requesting reconsideration of the license cancellation. The FCC rejected, inter alia, NextWave's argument that the cancellation was arbitrary and capricious. The FCC then held that the Second Circuit's holding precluded NextWave from raising any Bankruptcy Code arguments under the doctrine of res judicata. Communications Act Section 402(b) provides that appeals from the decision of the FCC may be taken to the D.C. Circuit, 47 U.S.C. ' 402(b)(2000). NextWave's appeal to the D.C. Circuit argued that license cancellation was 'patently unlawful' under Bankruptcy Code Sections 362 (automatic stay), 525 (anti-discrimination) and 1123 (cure of defaults).
The Supreme Court Decision
The Supreme Court upheld the D.C. Circuit's decision because the Administrative Procedure Act requires federal courts to set aside federal agency actions that are 'not in accordance with law,' including the Bankruptcy Code. 5 U.S.C. ' 506(2)(A) (2000). In this case, the FCC's revocation was not in accordance with Section 525 of the Bankruptcy Code which provides in relevant part: '[A] governmental unit may not ' revoke ' a license ' to ' a person that is ' a debtor under this title ' solely because such ' debtor ' has not paid a debt that is dischargeable in the case under this title ” 11 U.S.C. ' 525 (2000) [emphasis added]. However, the FCC argued that it did not revoke NextWave's licenses 'solely because' of non-payment, and that NextWave's obligations to pay for the licenses are not 'dischargeable' 'debts' within the meaning of the Bankruptcy Code. The FCC argued that it 'had a valid regulatory motive' for the cancellation. The Court held that the words 'solely because' cannot reasonably be understood to include the FCC's motive for cancellation. To do so would deprive Section 525 of all of its force. 'Section 525 means nothing more or less than that the failure to pay a dischargeable debt must alone be the proximate cause of the cancellation ' the act or event that triggers the agency's decision to cancel, whatever the agency's ultimate motive in pulling the trigger may be.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *15-16.
In addition, the FCC argued that 'regulatory conditions like the full and timely payment condition are not properly classified as 'debts” under the Bankruptcy Code. Id at *17. In other words, the 'financial nature of a condition on a license does not convert that condition into a debt.' Id at *18. The Court rejected this argument because the Bankruptcy Code definition of a 'debt' means 'liability on a claim,' 11 U.S.C. ' 101(12) and 'claim,' in turn, includes any 'right to payment,' 11 U.S.C. ' 101(5)(A). 'In short, a debt is a debt, even when the obligation to pay it is also a regulatory condition.' Id The Court also rejected the FCC's argument that the obligations are not dischargeable in bankruptcy because they are beyond the jurisdictional authority of the court to alter or modify regulatory obligations. 'The court found that dischargeability is not tied to the existence of jurisdictional authority.' Id at *19. Accordingly 'confirmation of a plan [of reorganization] ' discharges the debtor from any debt that arose before the date of such confirmation unless it falls within an expressed exception to the discharge.' Id
Finally, the Court found that its holding did not create a conflict with the Communications Act obstructing the FCC's authority to conduct auctions of spectrum licenses, since nothing in 47 U.S.C. ' 309(j) demanded cancellation of a license as a sanction for failure to make installment payments. 'What petitioners described as a conflict boils down to nothing more than a policy preference on the FCC's part for 1) selling licenses on credit, and 2) canceling licenses rather than asserting security interest in licenses when there is a default. Such administrative preferences cannot be the basis for denying respondents rights provided by the plain terms of a law. '[W]hen two statutes are capable of coexistence, there is the duty of the courts, absent poorly expressed congressional intention to the contrary, to regard each as effective.” Id at *20-21. Since Section 525 specifically prevents the Commission's permissible action, the FCC's revocation of NextWave's licenses is not in accordance with law. See 5 U.S.C. ' 706 (2000).
The Dissent
In his lone dissent, Justice Breyer believed that the Court should have vacated the D.C. Circuit's judgment and remanded the matter for further proceedings. This would have allowed the FCC the opportunity to show that revocation was not 'solely' because of the debt's dischargeability, but because the debtor failed to make an installment payment and that the FCC had a right to enforce its security interest against the license. Justice Breyer was concerned that the Majority's literal interpretation of Section 525 could, in turn, be interpreted to mean that 'a government cannot ever enforce a lien on property that it has sold on the installment plan as long as 1) the property is a license, 2) the buyer has gone into bankruptcy, and 3) the government wants the license back solely because the debtor did not pay for it.' NextWave Personal Communications, Inc., 2003 U.S. LEXIS 1059, at *33.
In its opinion, the Majority was critical of Justice Breyer's concern. The Majority felt that the Dissent's interpretation would render Section 525 superfluous, and that Congress meant what it said: 'The government is not to revoke the bankruptcy debtor's license solely because of a failure to pay his debts.' Id at *26. The Court found that the enforcement of the FCC's security interest in the bankruptcy process was not at issue, but the elimination of the licenses through the regulatory step of 'revoking' them in direct violation of Section 525 was. Id at *27.
Conclusion
In no uncertain terms, the Supreme Court has reminded federal agencies that they must obey all federal laws, including the Bankruptcy Code. In NextWave, the FCC exercised its regulatory authority by selling spectrum licenses. However, by selling the licenses on credit it became a creditor that is unable to enforce its default remedies against a bankruptcy debtor in violation of the Bankruptcy Code. However, it is troublesome that the case's procedural history did not allow the Court to find that bankruptcy courts have jurisdiction to resolve conflicts between the FCC actions and Bankruptcy Code provisions that were at issue in the Second Circuit decisions. Especially in the Second Circuit, it would seem that telecom debtors must run their bankruptcy cases in parallel with FCC administrative proceedings.
Robert P. Simons is a partner in the Pittsburgh, PA office of
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