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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.
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