Amicus Curiae Brief — FCC v. NextWave Personal Communications Inc.

‘og?

Nos. 01-653. 01-657 JUN 24 2oz

IN THE

Supreme Court of the Gnited States

P FEDERAL COMMUNICATIONS COMMISSION,

Petitioner,

rh ae V.

G2 ' \( _NEXTWAVE PERSONAL COMMUNICATIONS, INC., et al.,

= Respondents.

ARCTIC SLOPE REGIONAL CORPORATION, ef al.,

. Petitioners,

v.

NEXTWAVE PERSONAL COMMUNICATIONS, INC., ef al.,

Respondents.

On Writs of Certiorari to the United States

Court of Appeals for the District of Columbia Circuit

BRIEF FOR AMICI CURIAE SENATORS PATRICK LEAHY,

ORRIN HATCH, ROBERT TORRICELLI AND CHARLES

SCHUMER, REPRESENTATIVES JOHN CONYERS,

LINDSEY GRAHAM AND JERROLD NADLER, AND THE

ASSOCIATION OF COMMUNICATIONS ENTERPRISES

IN SUPPORT OF RESPONDENTS

WALTER DELLINGER

(Counsel of Record)

JONATHAN D. HACKER

JEREMY MALTBY

O’MELVENY & MYERS LLP

555 13th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

Attorneys for Amici Curiae

OPY

BEST AVAILABLE C

QUESTION PRESENTED

Whether the Court of Appeals correctly held that the

plain language of § 525(a) of the Bankruptcy Code, 11

U.S.C. § 525(a), precluded the Federal Communications

Commission from revoking licenses held by a debtor in

bankruptcy solely because such debtor did not make install-

ment payments after filing for bankruptcy.

il

TABLE OF CONTENTS

oe kt Fs Ee l

SUMMARY OF ARGUMENT .........cccccccsccecesesscscsssseceecoeee. 3

PO 5

A. The Bankruptcy Code Reflects Congress’s Balanc-

ing Of Numerous Policy Concerns, To Which This

Court’s Natural Meaning Interpretive Approach

of IN 7

B. Congress Has Considered And Rejected FCC Pro-

posals To Exempt Spectrum Licenses From Bank-

Sapte Cae § TES ..ncocsscssscssstinpisae 14

C. The Natural Meaning Of Bankruptcy Code § 525

Accurately Reflects Congress’s Intention To Af-

ford FCC Licensees And Their Creditors The Stan-

dard Protections Of The Code............cccccsccceseseeseseceeceee. 21

CONCLUSION

—— ——

iii

TABLE OF AUTHORITIES

CASES Page(s)

Bank of America Nat'l Trust & Sav. Ass'n v. 203 N.

LaSalle St. P’ship, 526 U.S. 434 (1999) .......ccccccceeeeeee 7,16

Butner v. United States, 440 U.S. 48 (1979)......cc.cccccceeeeeeeees )

Clearfield Trust Co. v. United States, 318 U.S. 363

ea 11

Cooke v. United States, 91 U.S. 389 (1875).......ccccccccceeeeeeees 11

Dallas-Fort Worth Reg’! Airport Bd. v. Braniff Air-

ways, 26 B.R. 628 (Bankr. N.D. Tex. 1982).............:00++ 9

Davis v. Pringle, 268 U.S. 315 (1924).......ccccccccceeeeeeeeeeneees 11

Duffey v. Dollison, 734 F.2d 265 (6th Cir. 1984) ............00. 28

In the Matter of Bradley, 989 F.2d 802 (Sth Cir. 1993)....... 28

In re Colon, 102 B.R. 421 (Bankr. E.D. Pa. 1989).............. 29

Franconia Assocs. v. United States, No. 01-455 (June

TIT isiiisisateneentenesesnanencensnnesesececsscsssestscanenaemmesseets 11

Guarantee Title & Trust Co. v. Title Guaranty &

Surety Co., 224 U.S. 152 (1912) .....ccccccccsecseereereeeeeeenees 11

Hartford Underwriters Ins. Co. v. Union Planters

FR DG) 8

Hillis Motors, Inc. v. Hawaii Auto Dealers’ Ass'n, 997

P.28 SBI CBG Cis. 1993).222.<cccccecccccccseccscccsccsccscccsccccccccceees 9

In re Bastian Co., 45 Bankr. L. Rep. 717 (W.D.N.Y.

Si iieiaririneraessdadppenanssnnsnneennsnnncanscnncsncecsnseqsssseesenesesessees 10

In re Bogosian, 112 B.R. 2 (Bankr. D.R.1. 1990) .............00+ 9

In re Exquisito Servs., Inc., 823 F.2d 151 (Sth Cir.

ITT laciiiehinteeneeeseninenenmneneseesennevevenceqnemnenenenesessneescssoecese 20

iv

TABLE OF AUTHORITIES (cont.)

CASES (cont.) Page(s)

In re Island Club Marina, Ltd., 38 B.R. 847 (N.D. Ill.

SU ecisesenesinsceeenesineniittatiii parame tiaaaimaataaatia tte tata ies 19

In re Mason, 18 B.R. 817 (Bankr. W.D. Tenn. 1982).......... 19

Kawaauhau v. Geiger, 523 U.S. 57 (1998) .....cccccccccceecceeeeeeee 8

Kokosca v. Belford, 417 U.S. 642 (1974) .o..cccccccccccceceececeeees 16

Los Angeles Dep't of Water & Power v. Manhart, 435

PRP icrccrerrnnisntseennnesiinteiaiemciritiinieeitaamaraainiaeiaiitats 24

Lubrizol Enters. v. Richmond Metal Finishers, 756

eS 9

Meyer v. Comm 'r, 383 F.2d 883 (8th Cir. 1967) .0........0.0.0-0-. 9

Missouri v. United States Bankruptcy Court, 647 F.2d

ey Pe aiesincineieiiahaainieiitaaatataictai ees 13

Mobil Oil Exploration & Producing Southeast, Inc. v.

United States, 530 U.S. 604 (2000) .......ccccccccccceeceeseceeees 11

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984) ............... 9

Ohio v. Kovacs, 469 U.S. 274 (1985) ......cccccccecesceeceseeseoes 12,22

Palmore v. Sidoti, 466 U.S. 429 (1984) .......cccccccccccceeseececeees 24

Pennsylvania Dep't of Pub. Welfare v. Davenport,

a ee I a Eainscsieciarbeiteseeitsinniesiniaaiemniiamniaaces! 9,12,21,22

Pennsylvania Peer Review Org. v. United States (In

re Pennsylvania Peer Review Org.), 50 B.R. 640

Se es BG ecrtpeccreccseneteneenecnenimmecemncmmnnnon 9

Perez v. Campbell, 402 U.S. 637 (1971).......ceccscesesesessseeeeees 26

Price Waterhouse v. Hopkins, 490 U.S. 228 (1989)............ 24

Rake v. Wade, 508 U.S. 464 (1993) ........cccccecsccssscseeeeeseenenes 8,9

v

TABLE OF AUTHORITIES (cont.)

CASES (cont.) Page(s)

Toibb v. Ratliff, 501 U.S. 157 (1991)......-.-.ecseecsereereneneees 8,16

Union Bank v. Wolas, 502 U.S. 151 (1991) .......cccceeeeeeeneeerees 8

United States v. Estate of Romani, 523 U.S. 517

(199B) ....cceccccerersererersoseserescscssnsenssccecsecenssssssssecssossscsoooooses 11

United States v. Kimbell Foods, Inc., 440 U.S. 715

(1D TD) .cccececscscsesesscessevscsssssssnsscsssssssssssssseseseseseseeeenees 7,10,12

United States v. National Exchange Bank, 270 U.S.

427 (1926) ....-0-0cecscssceresesssscssrensenrenrenssosesssssesesssssoosessensers 11

United States v. Ron Pair Enterps., Inc., 489 U.S. 235

(19B9) ....cecscreraceceesesseeseseseseseseosensensesenssensssssssosssssnsoneneoess 7,8

United States v. Vecchio (In re Vecchio), 20 F.3d 555

(2d Cir. 1994)........ccccccessseserersensensensnsnssnsnsnsnsnsnsnnenenenenenes 9

United States v. Whiting Pools, Inc., 462 U.S. 197

(19GB) ....cececeesesesessssssssesesosesnsnsesseonenenseosssesosesosessenoosese 12,16

United States v. Winstar Corp., 518 U.S. 839 (1996).......... 11

United States Trustee v. Columbia Gas Sys. Inc. (In re

Columbia Gas Sys., Inc.), 33 F.3d 294 (3d Cir.

TTI coininhaieindbasithtimepdosdianieaitaaniehdiaeiaitinaniedit 9

Village of Bellwood v. Dwivedi, 895 F.2d 1521 (7th

— AALS 24

STATUTES

ke 13

nn 21

Sk | ee 21

11 U.S.C. § 362(0)(4) ..uscccccsecccessneeeeenes sasiiieaaieilaamnsiiiiaadieh 12

a 13

vi

TABLE OF AUTHORITIES (cont.)

STATUTES (cont.) Page(s)

I 13

a ny TTT csticesihitisiceensincieieieebiteiaaeaieatia 13

ee I icici ieaeieaas 13

ee ann UI TTTITTTTTcesnicredisielnehaiassiieaeaiadaaliaitnsiierciaai 12

I I ctiticaciiniierinarieciepi acti aici 12

ee aan SE UEIIITTTTTTTTTTT A ieseciiiieahaiiatemetitieitiaia 23

See Uns TIO hacsnineerroneerieiticinnrtiniertieenieinitainianiicettaiiaiias passim

a passim

Bankruptcy Amendments and Federal Judgeship Act

of 1984, Pub. L. No. 98-353, 98 Stat. 333 ........ccccccccceeeeee 9

Bankruptcy Judges, United States Trustees, and Family

Farmer Bankruptcy Act of 1986, Pub. L. No. 99-

a es IE crnreereresnenntencsnensccnsesnssntiniinintinensinnnmien 9

Bankruptcy Reform Act of 1994, Pub. L. No. 103-394,

es AEUIED cxanensnsscnsenssntunnsceneatennaneseniemnssininmamemens 9

Bankruptcy Tax Act of 1980, Pub. L. No 96-589, 94

ey SEE? consrisensneenenieentnnsnmnamnerennesanermanmmsnmemmtneenees 9

Comprehensive Omnibus Budget Reconciliation Act of

1986, Pub. L. No. 99-272, 100 Stat. 82..........ccccccccceeeeee 10

Crime Control Act of 1990, Pub. L. No. 101-647, 104

SED CITED? cesenenininssionenienstnsaminsneinnianentnienammantinmeseistmmsmsmases 9

Intellectual Property Protection Act of 1988, Pub. L.

es Se UE Se icetennenschecsseneciensnntnneemenen 9

Act of 1998, Pub. L. No. 105-277, 112 Stat. 26811 .......... 9

vii

TABLE OF AUTHORITIES (cont.)

STATUTES (cont.) Page(s)

Perishable Agricultural Commodities Act, 7 U.S.C.

OID, ccnnsnsenenmensacccarenansseemennmenmemnsenenms 13

Packers and Stockyards Act of 1921, 7 U.S.C. §§ 181

6B GB ecceserssesceresesezssenenenecsecccssnsessrnsssnsesnenseavensesseeteeneaeneess 13

Rail Safety Enforcement and Review Act of 1992,

Pub. L. No. 102-365, 106 Stat. 972............cccsscseseeeeseees 10

OTHER LEGISLATIVE MATERIALS

H.R. 4690 § 618, 106th Cong. (2000)..............:ccccceseeeeeneeees 14

H.R. 2670 § 618, 105th Cong. (1999) ...........cccccccecceeeeeeeesees 14

8 13,16,25,28

TERR. Rha, Dike, GE-GD CO Pe cccssansscsscrscsssssssssessessssemesess 28,29

124 Cong. Rec. $17,409 (Oct. 6, 1978) ...vcccssscssssssssssseneeen 13

124 Cong. Rec. H11,092 (Sept. 28, 1978) ..........:cccccceeeeseeees 13

Limits On Regulatory Powers Under the Bankruptcy

Code, Hrng. Before Subcomm. Commercial and

Admin Law of House Comm. on Judiciary, 106th

Cong., 2d Sess. (April 11, 2000).............cccccsseeesesseseeees 18

Letter from Hon. Tom Bliley, Hon. John D. Dingell,

Hon. W.J. “Billy” Tauzin, Hon. Edward J. Markey,

Hon. Henry J. Hyde, Hon. John Conyers, Jr., Hon.

George W. Gekas, Hon. Jerrold Nadler, Hon. Rich-

ard K. Armey, and Hon. Richard J. Gephardt to

Hon. William J. Clinton, Nov. 4, 1999 .................000 15,18

Vili

TABLE OF AUTHORITIES (cont.)

OTHER LEGISLATIVE MATERIALS (cont.) _ Page(s)

Letter from Hon. Tom Bliley, Hon W.J. “Billy”

Tauzin, Hon. John D. Dingell, and Hon Edward J.

Markey to Hon. Newt Gingrich, Hon. Richard A.

Gephardt, Hon. Erskine Bowles, Hon. Bob

Livingston, and Hon. David R. Obey, Oct. 15,

RNR Oe Ec ee ET 15,17

Letter from Hon. Henry J. Hyde, Hon. George W.

Gekas, Hon. John Conyers, Jr. and Hon. Jerrold

Nadler to Hon. Bill Young, Hon. Harold Rogers,

Hon. David R. Obey, and Hon. Jose E. Serrano,

I iat 15

Letter from Hon. Orrin Hatch to Hon. Trent Lott, Oct.

Seiki 15

Letter from Hon. Kay Bailey Hutchinson and Hon.

Max Cleland, July 16, 1999 o0.0........cccccsesecsescesceseeceeeees 15

Letter from Hon. Robert J. Torricelli to Hon. Trent

I ai 15,17

OTHER AUTHORITIES

Able, “Hot Goods” Liability: Secured Croditors and

the Fair Labor Standards Act, 87 Colum. L. Rev

prea cciinnsercenetatnainninseneamnatiinaiacaninaataitaitatieaaaa staat 19

Bussel, Textualism’s Failures: A Study of Overruled

Bankruptcy Decisions, 53 Vand. L. Rev. 887

(2000) . 10

Klee, Legislative History of the New Bankruptcy Law

(1979), reprinted in Collier on Bankruptcy, App.

Pt. 4, 199-215 (15th ed. 1996)..........ccccccccececcecesesceseceseeees 7

Note, Unsecured Creditors of Failed Banks: It’s Not a

Wonderful Life, 104 Harv. L. Rev. 1052 ee 19

This brief amici curiae is respectfully submitted in sup-

port of respondents, with the written consent of both parties.’

INTERESTS OF AMICI

The amici members of Congress are Senator Patrick

Leahy, Senator Orrin Hatch, Senator Robert Torricelli, Sena-

tor Charles Schumer, Representative John Conyers, Repre-

sentative Lindsey Graham, and Representative Jerrold

Nadler. The congressional amici are a bipartisan group of

Senators and Representatives with particular responsibility

for and interest in the administration of the statutes at issue

in this case. The legislative duties of the congressional amici

include primary responsibility for balancing the many poli-

cies expressed in the Bankruptcy Code and the interests af-

fected by it. Section 525 of the Code reflects such a balanc-

ing: consistent with the Code’s overarching goal of provid-

ing debtors an opportunity for a fresh start, § 525 establishes

a narrow but important check on the power of government to

withhold or revoke needed licenses from debtors in bank-

ruptcy. In the exercise of its responsibility to supervise the

policy balances in the Code, Congress has previously con-

sidered and rejected proposals that would establish a narrow

exemption from § 525 for licenses issued by the FCC. Amici

strongly believe that, as this Court’s precedents have repeat-

edly declared, the task of balancing the many, finely-

calibrated interests at stake in the Bankruptcy Code is com-

mitted exclusively to Congress, and where Congress has

spoken plainly to an issue in the Code, the courts should not

construe the Code differently for asserted policy reasons.

It is the experience of the congressional amici that where

sound policy requires an exception to a general rule in the

' Letters of consent have been filed with the Clerk. No counsel for a

party to this case authored this brief in whole or in part, and no person or

entity other than amici curiae or their counsel made a monetary contribu-

tion to the preparation and submission of this brief.

2

Code to serve the interests of government, Congress typi-

cally acts in responsible bipartisan fashion to create the

needed exception. The task of balancing the different poli-

cies and interests reflected in the Code becomes more diffi-

cult when courts ignore those balances in favor of different

policy Judgments. The congressional amici therefore have a

strong interest in the continuation of this Court’s practice of

interpreting the Code strictly as written.

Amicus Association of Communications Enterpri

(“ASCENT”) is an association of entrepreneurial yer

business communications companies. Many of ASCENT’s

members are resellers of wireless services and are wholly

dependent on existing facility-based wireless carriers as

sources of supply. ASCENT’s interest in this case arises out

of the impending sunset of the FCC’s “wireless resale rule”

in November 2002 — which may terminate the FCC’s rules

requiring mandatory resale of wireless service. ASCENT is

greatly concermed that the sunset of that rule will close off

existing sources of supply and severely limit resale opportu-

nities. Respondent NextWave proposes to build out a na-

tionwide wireless PCS network and intends to \offer its ser-

vices on a wholesale basis to other carriers, resellers and

mobile virtual network operators. NextWave’s strategy of

acting as a “carrier’s carrier” will afford ASCENT’s mem-

bers continued Opportunity to offer wireless services on a

resale basis, even after the impending wireless resale sunset,

and will encourage greater competition and consumer

choice. ASCENT’s members therefore share the interest of

the congressional amici in enforcement of the plain text of §

525, which affords protection not only for debtors such as

NextWave, but also for creditors and others, such as

ASCENT’s members, whose own businesses are closely re-

lated to the debtor’s and may be deeply affected by the pres-

ervation of government licenses and similar assets critical to

the debtor’s financial viability.

ae, RRS = at «swe. -+

3

SUMMARY OF ARGUMENT

Section 525 of the Bankruptcy Code bars a government

agency from revoking a license solely because of the licen-

see’s failure to pay a debt dischargeable in bankruptcy. Re-

spondent NextWave’s licenses were revoked because it

failed to satisfy a payment obligation to the government on

which the license was conditioned. The heart of the FCC’s

position in this case is the proposition that because those

payment obligations served the FCC’s “regulatory. pur-

poses,” the licenses were properly revoked, despite the § 525

bar. The FCC is wrong. To the extent those payments

served regulatory purposes — and there is no genuine dispute

that they served other purposes as well, primarily revenue

collection — the existence of such purposes does not carve

respondent out from the explicit protection of § 525.

A. The Bankruptcy Code is a reticulated statute, crafted

and reffned through bipartisan legislative action. Congress

drafted the initial language after years of work to balance

numerous competing policy interests, and has amended the

Code at various times over the years to reflect revisions in

the policy judgments underlying the Code’s language. Con-

gress has understood that, because of the reliance interests

that develop around the legal rules established by a commer-

cial statute of this nature, it is especially important that Con-

gress’s policy judgments be reflected in the plain text of the

Code. Recognizing and respecting the primacy of Congress

in the establishment of bankruptcy policy, this Court’s cases

have consistently presumed that the text reflects Congress's

considered policy judgments, and have hewed closely to the

natural meaning of the text in applying Code provisions.

Contrary to the premises of the FCC’s argument, the Court

has not applied its own policy gloss to the text, nor has it ac-

corded presumptively favorable treatment to government en-

tities such as the FCC. The Court has understood that where

sound , olicy demands a special exemption from the opera-

4

tion of the bankruptcy laws for government entities, Con-

gress can and will provide it.

B. Congress has repeatedly considered — and rejected —

proposals to confer such an exemption from the operation of

§ 525 on licenses issued by the FCC. Members of Congress

from both parties believed that depriving entities with FCC

licenses of the protections of § 525 would contradict the fun-

damental policy of the Bankruptcy Code of allowing all

debtors a fresh start, would unfairly favor the FCC over other

creditors with significant financial interests at stake in the

debtor’s estate, and would undermine the ability of small

businesses to generate the capital and financing necessary to

facilitate their participation in license auctions. Though

Congress rejected a narrow exemption for the FCC on those

bases, what the FCC proposes here is more sweeping — an

effective exemption from § 525 for all government agencies

and all government licenses, so long as the agency can ar-

ticulate some regulatory purpose for its licensing decisions.

Given the broad impacts such a rule would have on the reli-

ance interests of government licensees and their creditors

throughout the economy, there is even less justification for

impressing such a policy onto the Code by judicial fiat than

for adopting a narrow FCC exemption by proper legislative

amendment.

C. There is no doubting that adoption of the FCC’s posi-

tion here would require deviation from the plain text of § 525

— and therefore deviation from the policy judgments Con-

gress made both in crafting § 525 and in rejecting the FCC’s

efforts to obtain special treatment under the provision. Re-

spondent’s license payment obligation plainly is a “debt”

that is “dischargeable” in bankruptcy. It is equally clear that

the FCC revoked the licenses “solely because” respondent

failed to make payments on that debt. The FCC says that

failure to make payments is a proxy for its interest in identi-

fying licensees with the financial and other resources to de-

5

velop the spectrum, but the undisputed fact is that if respon-

dent had made its payment, the FCC would not have revoked

the licenses, regardless of respondent’s actual financial vi-

ability or spectrum development progress. And, finally,

nothing in § 309(j) of the Communications Act required the

FCC to make late payments the sole trigger for outright

revocation of a license. Section 525 applies here not only

because of a policy judgment by Congress favoring protec-

tion for debtors and creditors, but also because the FCC

elected to base license revocation solely on the failure to

make payments, rather than to impose any of a variety of

other possible license requirements that would have served

its spectrum-regulation interests equally well.

ARGUMENT

The licenses at issue in this case were automatically re-

voked by the FCC when the licensee, respondent NextWave,

failed to make timely installment payments to the FCC while

reorganizing under the bankruptcy laws. The question here

is whether § 525 of the Bankruptcy Code prohibits the FCC

from conditioning respondent’s possession of its licenses on

the timely satisfaction of each installment payment obliga-

tion, once respondent entered bankruptcy. Section 525 pro-

vides, in pertinent part, that “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(a).

The FCC contends that revocation of the licenses for

failure to make timely installment payments was proper un-

der § 525 — or despite § 525 — merely because “the FCC en-

forces the full and timely payment condition for regulatory

reasons.” FCC Br. 37. Those reasons are essentially that the

FCC presumed that the highest bidder would be “the ‘best’

licensee,” and that “the bidder’s failure to make timely pay-

ment” — to miss even one payment, that is — “is fatal to its

6

implicit representation that it is the ‘best’ of the potential li-

censees,” in terms of putting the spectrum to full use in the

public interest. Jd.

At the turn of every statutory phrase, the FCC offers this

same argument for why § 525 is inapplicable. The license

payment obligation is not a “debt,” the FCC says, because it

serves the FCC’s regulatory purposes. The obligation is not

“dischargeable” in bankruptcy, the FCC says, because it

serves the FCC’s regulatory purposes. And the license was

not revoked “solely because of” respondent’s failure to pay,

the FCC says, because revoking the license for failure to pay

serves the FCC’s regulatory purposes. Nor does the FCC’s

reliance on this argument stop with the text of the statute.

Whatever § 525’s meaning for the revocation of licenses in

other cases and contexts, the FCC suggests, it should be con-

strued in the FCC’s favor here because to do otherwise

would put § 525 in conflict with another statute — the Com-

munications Act — that establishes the regulatory purposes

the FCC sought to serve by revoking the licenses.

As we elaborate below, infra at 21-30, this “regulatory

purposes” defense fails at every step of the analysis, from the

statutory text through to the policies the FCC cites. We be-

gin, however, by addressing a key premise underlying the

FCC’s claims: this Court should construe § 525 to reflect

not so much the natural meaning of its text, but rather the

policies underlying § 309(j) of the Communications Act. As

we show, this proposed interpretive mode is inconsistent

with this Court’s standard approach of construing the Code

strictly, an approach that properly leaves to Congress the leg-

islative task of drafting the Code to reflect the appropriate

balance of competing policy objectives. To deviate from

that approach in this case would be especially inappropriate,

inasmuch as Congress has considered — and explicitly re-

jected — the very policy choice the FCC now asks this Court

to graft onto § 525.

7

A. The Bankruptcy Code Reflects Congress’s Balancing

Of Numerous Policy Concerns, To Which This

Court’s Natural Meaning Interpretive Approach

Properly Defers

1. The Bankruptcy Code was “long and minutely con-

templated” by Congress before its enactment in 1978. Bank

of America Nat'l Trust v. 203 N. LaSalle St. P’ship, 526 U.S.

434, 450 (1999). Members of Congress from both parties

worked together “for nearly a decade” to formulate the Code,

United States v. Ron Pair Enterps., Inc., 489 U.S. 235, 241

(1989), in an effort “to bring an entire area of law under a

single, coherent statutory umbrella,” 203 North LaSalle, 526

U.S. at 461 (Thomas, J., concurring); see generally Klee,

Legislative History of the New Bankruptcy Law (1979) (de-

tailing bipartisan process of drafting and enacting Code), re-

printed in Collier on Bankruptcy, App. Pt. 4, 199-215 (15th

ed. rev. 2002). While the process of legislating on any sub-

ject can be very difficult, and may sometimes result in com-

promises that lead to less rather than more textual clarity, the

Bankruptcy Code is in many ways a unique statute. Years of

bipartisan efforts to develop a sensible and coherent Code at

the beginning, followed by continuous efforts to respond in

the same vein to issues and problems that have arisen during

the Code’s application, have produced a largely workable

balancing of the many competing interests involved. See

203 North LaSalle, 526 U.S. at 461 (Thomas, J., concurring)

(noting only “rare instances when the Code is truly ambigu-

ous”). Coherence — or at least understandability — is espe-

cially desirable in a commercial statute of this nature, for its

operation affects the value of every investment in enterprises

that are entitled to avail themselves of the law’s protections.

As this Court has recognized, the interests of those who lend

or invest capital in an entity in reliance on the terms of the

Code underscore the importance of applying the Code

strictly in accordance with those terms. See United States v.

Kimbell Foods, Inc., 440 U.S. 715, 739 (1979) (declining to

8

accord government special priority for its loan liens in part

because of other creditors’ reliance interests).

2. This Court’s cases thus consistently reflect the pre-

sumption that the plain text of the Code reflects Congress’s

considered judgment as to how given bankruptcy policy in-

terests are best balanced. That is why this Court will apply

the “natural reading” of the text of the Code, even if the

Court believes bankruptcy policy would be better served

otherwise. Hartford Underwriters Ins. Co. v. Union Planters

Bank, N.A., 530 U.S. 1, 13-14 (2000). As the Court elabo-

rated in Hartford Underwriters:

We do not sit to assess the relative merits of different

approaches to various bankruptcy problems. It suf-

fices that the natural reading of the text produces the

result we announce. Achieving a better policy out-

come... is a task for Congress, not the courts.

Id. Thus the mere fact “that Congress may not have foreseen

all the consequences of a statutory enactment [in the Code] is

not a sufficient reason for refusing to give effect to its plain

meaning.” Union Bank v. Wolas, 502 U.S. 151, 158 (1991);

see id. at 162 (“Whether Congress has wisely balanced the

sometimes conflicting policies underlying [the Code] is not a

question that we are authorized to decide.”). Other decisions

of this Court reflect this commitment to applying the most

natural reading of the Code’s text, rather than a construction

derived from a preferred policy outcome. See Kawaauhau v.

Geiger, 523 U.S. 57, 64 (1998); Rake v. Wade, 508 U.S. 464,

473 (1993); Toibb v. Ratliff, 501 U.S. 157, 164 (1991); Ron

Pair, 489 U.S. at 241.

3. The validity of the presumption that Congress is fully

capable of ensuring that the Code’s text reflects Congress’s

considered policy views is amply confirmed by the history of

continued bipartisan efforts to refine the Code since its origi-

nal enactment. In particular, Congress has proved itself will-

9

ing and able to adjust the Code, or other statutes, as needed

to respond to issues raised in bankruptcy-related litigation at

all levels. Thus, Congress has amended relevant statutes in

response to decisions by this Court,” the federal courts of ap-

peals,” and the bankruptcy courts.* One article identifies no

? See, e.g., Rake, supra (home mortgage interest), superseded by

Reform Act of 1994, Pub. L. No. 103-394, § 305, 108 Stat.

_ Bankruptcy

4106, 4134; Pennsylvania Dep't of Pub. Welfare v. Davenport, 495 U.S.

$52 (1990) (dischargeability of criminal restitution obligations), super-

seded by Crime Control Act of 1990, Pub. L. No. 101-647, § 3102(b),

104 Stat. 4789, 4916, re-amended by Bankruptcy Reform Act of 1994,

supra, § 302, 108 Stat. at 4132; NLRB v. Bildisco & Bildisco, 465 U.S.

513 (1984) (rejection of collective bargaining agreements), superseded

by Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L.

No. 98-353, § 541, 98 Stat. 333, 390; Butner v. United States, 440 U.S.

48 (1979) (mortgagee’s security interest in rents), superseded by Bank-

ruptcy Reform Act of 1994, supra, § 214(a), 108 Stat. at 4126.

* See, e.g., United States Trustee v. Columbia Gas Sys. Inc. (In re

Columbia Gas Sys., Inc.), 33 F.3d 294 (3d Cir. 1994) (absent bond trus-

tee investments), superseded by Bankruptcy Reform Act of 1994, supra,

§ 210, 108 Stat. at 4125; Hillis Motors, Inc. v. Hawaii Auto Dealers

Ass'n, 997 F.2d 581 (9th Cir. 1993) (state regulators’ exception from

automatic stay), superseded by Omnibus Consolidated and Emergency

Appropriations Act of 1998, Pub. L. No. 105-277, § 603, 112 Stat. 2681,

2681-86; United States v. Vecchio (In re Vecchio), 20 F.3d 555 (2d Cir.

1994) (status of late filed priority claims), superseded by Bankruptcy

Reform Act of 1994, supra, § 213, 108 Stat. at 4125-26; Lubrizol Enters.

v. Richmond Metal Finishers, 756 F.2d 1043 (4th Cir. 1985) ——

licensee rights), superseded by Intellectual Property Protection Act o

1988, Pub. L. te 100-506, § 1, 102 Stat. 2538, 2538; Meyer v. Comm,

383 F.2d 883 (8th Cir. 1967) (corporate profits), superseded by Bank-

ruptcy Tax Act of 1980, Pub. L. No. 96-589, 94 Stat. 3389, 3406 (1980).

* See, e.g., In re Bogosian, 112 B.R. 2 (Bankr. D.R.I. 1990) (Bank-

ruptcy Rule 4001(a)(2) time limits not enforceable in lift stay proceed-

ing), superseded by Bankruptcy Reform Act of 1994, supra, § 101, 108

Stat. 4106, 4107; Pennsylvania Peer Review Org. v. United States (In re

Pennsylvania Peer Review Org.), 50 B.R. 640 (Bankr. M.D. Pa. 1985)

(assumption of personal services contracts), superseded by Bankruptcy

Judges, United States Trustees, and Family Farmer Bankruptcy Act of

1986, Pub. L. No. 99-554, § 283(e), 100 Stat. 3088, 3117; Dallas-Fort

10

fewer than fifty-eight bankruptcy-related judicial decisions

that Congress has addressed directly to provide for desired

treatment of particular issues or parties in bankruptcy pro-

ceedings. See Bussel, Textualism’s Failures: A Study of

Overruied ankruptcy Decisions, 53 Vand. L. Rev. 887, 902,

930-38 (2000).

As the title of that article suggests, its author draws from

these “legislative overrulings” the lesson that this Court’s

practice of adhering to the natural meaning of the Code is an

inappropriate approach to construing the Code. The opposite

is true. As we have explained, the history establishes that

when this Court simply applies the natural meaning of the

text, it both respects reliance interests accumulated on the

basis of that text, and it leaves for Congress the opportunity

to assess whether the text reflects the proper balancing of

judgments. The practice also allows Congress to respond

with much more precision in textual adjustment than a court

can wield in applying a general policy gloss to the statutory

text. See generally Kimbell Foods, 440 U.S. at 739-40 (“Be-

cause the ultimate consequences of altering settled commer-

cial practices are so difficult to foresee, we hesitate to create

new uncertainties, in the absence of careful legislative delib-

eration.”). Bankruptcy law and policy are much better

served when the courts hew closely to the text of the Code,

and leave to the legislative branch the responsibility and op-

portunity to fine-tune that text as necessary — and, it is im-

portant to add, only to the extent necessary.

Worth Reg'l Airport Bd. v. Braniff Airways, 26 B.R. 628 (Bankr. N_D.

Tex. 1982) (rejection of airport facilities leases), superseded by Rail

Safety Enforcement and Review Act of 1992, Pub. L. No. 102-365,

§ 19(b), 106 Stat. 972, 982; Jn re Bastian Co., 45 Bankr. L. Rep. 717

(W.D.N.Y. 1985) (rejection of pension plan), superseded by Comprehen-

sive Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-272,

§ 11007(a), 100 Stat. 82, 244 (1986).

11

4. In addition to the “policy-interpretive” approach un-

derlying the FCC’s position, the FCC also rests its argument

on the implicit premise that the Bankruptcy Code presump-

tively privileges government and the exercise of its regula-

tory functions. That notion is quite wrong: this Court’s

cases for decades have correctly observed that Congress pre-

sumptively treats the government under the bankruptcy laws

“like any other general creditor.” United States v. Estate of

Romani, 523 U.S. 517, 531 (1998) (citing Davis v. Pringle,

268 U.S. 315 (1924); Guarantee Title & Trust Co. v. Title

Guaranty & Surety Co., 224 U.S. 152 (1912)). Such treat-

ment is consistent with the approach both Congress and this

Court typically take toward the government when it engages

in commercial transactions of any kind. See, e.g., Mobil Oil

Exploration & Producing Southeast, Inc. v. United States,

530 U.S. 604, 607 (2000) (“When the United States enters

into contractual relations, its rights and duties therein are

governed generally by the law applicable to contracts be-

tween private individuals.” (internal quotations marks omit-

ted)); United States v. Winstar Corp., 518 U.S. 839, 893-94

(1996) (plurality op.) (rejecting government argument that

law “enacted to govern regulatory policy and to advance the

general welfare” is automatically exempted from standard

operation of contract rules); Clearfield Trust Co. v. United

States, 318 U.S. 363, 369 (1943) (“The United States does

business on business terms.”) (quoting United States v. Na-

tional Exchange Bank, 270 U.S. 427, 534 (1926) (Holmes,

J.)); Cooke v. United States, 91 U.S. 389, 396 (1875) (“when

the United States become parties to commercial paper, they

incur all the responsibilities of private persons under the

same circumstances”); see also Franconia Assocs. v. United

States, No. 01-455 (June 10, 2002) (applying foregoing prin-

ciples in declining to adopt reading of Tucker Act provision

that would treat government more favorably than similarly-

situated private parties).

12

The basis for this presumption is unassailable: as the his-

tory, discussed above, of Congress’s response to judicial de-

cisions demonstrates, when the government needs special

treatment in certain business transactions that reflect or serve

particularly important regulatory goals, Congress can and

visions of the Bankruptcy Code do provide for special or

preferred treatment for the Government as a creditor in bank-

ruptcy. See, e.g., 11 U.S.C. § 507(a\(8) (priority for unse-

cured tax claims); id. § 523(a)(1) (nondischarge of certain

tax liabilities); see also infra at 13 (citing specific exceptions

to automatic stay for certain types of debts to government).

These are the exceptions that literally prove the rule: unless

the Code or other laws explicitly provide for special treat-

ment in bankruptcy court for government claims, such claims

receive no privilege merely because they are backed by some

valid regulatory purpose. See, e.g., United States v. Whiting

Pools, Inc., 462 U.S. 197, 209 (1983) (“We see no reason

why a different rule should obtain when the IRS is the credi-

tor. . .. Nothing in the Bankruptcy Code or its legislative his-

tory indicates that Congress intended a special exception for

the tax collector in the form of an exclusion from the estate

of property seized to satisfy a tax lien.”); see also Pennsyl-

vania Pub. Welfare Dep't v. Davenport, 495 U.S. 552 (1990)

(no special treatment for restitution obligation in absence of

specific Code exception); Ohio v. Kovacs, 469 U.S. 274

(1985) (same for monetized environmental clean-up obliga-

tion); cf Kimbell Foods, 440 U.S. at 734 (declining “unre-

flective extension of rules [priority of tax liens] that immu-

nize the United States from the commercial law governing

all other secured creditors”).

Even where Congress has released governmental units

from certain constraints of bankruptcy law, such exceptions

are narrowly tailored and carefully circumscribed. These

include the “police and regulatory powers” exception to the

automatic stay provision of the Code, 11 U.S.C. § 362(b)(4).

13

To maintain an adequate shield for debtors, congressional

sponsors made clear that § 362(b)(4) is to “be given a narrow

construction,” applying only to “actions to protect the public

health and safety” and not “to actions . . . to protect a pecu-

niary interest.” 124 Cong. Rec. H11,092 (Sept. 28, 1978)

(statement of Rep. Edwards); 124 Cong. Rec. $17,409 (Oct.

6, 1978) (statement of Sen. DeConcini); see, e.g., Missouri v.

United States Bankruptcy Court, 647 F.2d 768, 776 (8th Cir.

1981) (§ 362(b)(4) does not allow government creditor to

enforce regulations concerning operation and liquidation of

insolvent public grain elevators that conflict with bankruptcy

court’s authority, even though regulations motivated in part

by regulatory aims). Recognizing the narrow scope of this

exception, some federal agencies over the years have sought

— and Congress has provided - more specific exceptions

from the automatic stay rule. Those exceptions explicitly

exempt the collection efforts of specified agencies for certain

kinds of debts — efforts with clear regulatory aims that none-

theless did not qualify as exercises of “police or regulatory

powers” under § 362(b)(4). See 11 U.S.C. § 362(b)(8) (fore-

closure on certain HUD mortgages); id. § 362(b)(12)&(13)

(foreclosure on ship mortgages held under the Merchant Ma-

rine Act); id. § 362(b)(16) (federal student loan program eli-

gibility determinations).

Congress has even seen fit to provide exemptions in the

terms of § 525 itself for certain types of government licenses.

See 11 U.S.C. § 525 (exempting licenses and grants under

Perishable Agricultural Commodities Act, 7 U.S.C.

§§ 499(a) et seq.; under Packers and Stockyards Act of 1921,

7 U.S.C. §§ 181 et seg.; and under 7 U.S.C. § 204). As the

next section shows, the FCC has repeatedly — and unsuccess-

fully — sought similar special treatment for FCC licenses in

bankruptcy proceedings.

14

B. Congress Has Considered And Rejected FCC Pro-

posals To Exempt Spectrum Licenses From Bank-

ruptcy Code § 525

As noted above, the FCC’s position in this litigation is

fundamentally premised on the assertion that the power to

revoke the licenses of a debtor in bankruptcy who misses a

payment is necessary to enforce the policies underlying

§ 309(j) of the Communications Act. See supra at 5-6. But

the FCC has already sought precisely that authority from

Congress, in a variety of forms, including a specific amend-

ment to § 309(j) itself. Those proposals generated bipartisan

opposition and were repeatedly rejected. Their consistent

failure demonstrates that Congress, which of course estab-

lished the very § 309 policies on which the FCC now relies,

does not share the FCC’s view that those policies support

special treatment for its licenses under § 525.

1. Consecutive Congresses have considered Administra-

tion proposals that would have amended the auction provi-

sions of the Communications Act, 47 U.S.C. § 309(j), to ex-

empt FCC licenses altogether from the operation of § 525.

The proposed amendment, which appeared in several bills,

read in relevant part: “Title 11 ... shall not apply . . . to the

Commission . . . with respect to . . . and act by the Commis-

sion to issue, deny, cancel, or transfer control of . . . a license

or permit.” H.R. 4690 § 618, 106th Cong. (2000); H.R. 2670

§ 618, 105th Cong. (1999).

Opposition to this proposal was strong and bipartisan. In

November 1999, ten members of the House, including Ma-

jority Leader Armey and Minority Leader Gephardt, as well

as the chairmen and ranking members of four governing

committees and subcommittees, sent a letter to the President

warning that granting the FCC authority to “seize in bank-

ruptcy proceedings radio licenses previously issued to tele-

communications companies .. . would be contrary to both

current telecommunications policy and bankruptcy law.”

15

Letter from Hon. Tom Bliley, Hon. John D. Dingell, Hon.

W.J. “Billy” Tauzin, Hon. Edward J. Markey, Hon. Henry J.

Hyde, Hon. John Conyers, Jr., Hon. George W. Gekas, Hon.

Jerrold Nadler, Hon. Richard K. Armey, and Hon. Richard J.

Gephardt to Hon. William J. Clinton, Nov. 4, 1999 (“Nov. 4,

1999 Letter”). In another letter, Republican and Democratic

leaders of the House Commerce Committee argued that the

proposal would “fundamentally alter the bankruptcy protec-

tions” available to FCC licensees, with “unintended conse-

quences” that could “significantly upset market equities and

constitute bad economic policy.” Letter from Hon. Tom Bli-

ley, Hon W.J. “Billy” Tauzin, Hon. John D. Dingell, and

Hon Edward J. Markey to Hon. Newt Gingrich, Hon. Rich-

ard A. Gephardt, Hon. Erskine Bowles, Hon. Bob

Livingston, and Hon. David R. Obey, Oct. 15, 1998, at 2

(“Oct. 15, 1998 Letter”). And leaders of the Judiciary

Committee from both parties contended that the proposal

would “endow{] the FCC with more protections than virtu-

ally any other creditor, including the Internal Revenue Ser-

vice, has under current bankruptcy law,” and could “poten-

tially destroy a [licensee] debtor’s prospect for economic re-

habilitation and deprive creditors of a major source of re-

payment.” Letter from Hon. Henry J. Hyde, Hon. George

W. Gekas, Hon. John Conyers, Jr. and Hon. Jerrold Nadler to”

Hon. Bill Young, Hon. Harold Rogers, Hon. David R. Obey,

and Hon. Jose E. Serrano, July 21, 1999, at 2.°

> See also Letter from Hon. Orrin Hatch to Hon. Trent Lott, Oct. 19,

1998 (describing FCC proposal as “backdoor attempt to effectively make

the protections afforded by the bankruptcy laws ineffective when the

FCC is in the position of creditor in bankruptcy court”); Letter from Hon.

Robert J. Torricelli to Hon. Trent Lott, Oct. 18, 2000 (“Torricelli Letter”)

(“It is unreasonable . . . for the FCC to conclude that its licensees should

be denied the rights afforded to all by the bankruptcy laws to cure de-

faults, reorganize, and emerge as a viable enterprise . Such a conclusion

is both j cable and antithetical to C ’ original i '

the protection of small business ’ access to spectrum.”); Letter from Hon.

16

2. As the foregoing statements reveal, congressional op-

position to exempting FCC licenses from § 525 was founded

on at least three related concerns.

a. One concern was that stripping FCC licensees of the

protections of § 525 would seriously threaten the viability of

those licensees, many of which were nascent enterprises

whose primary assets were their licenses. Congress under-

standably believed that destroying the ability of licensees to

operate by seizing their licenses would contradict the most

fundamental policies underlying the Bankruptcy Code: the

twin “recognized policies” of “preserving going concerns

and maximizing property available to satisfy creditors.” 203

North LaSalle, 526 U.S. at 453; see Toibb, 501 U.S. at 163;

Kokosca v. Belford, 417 U.S. 642, 645-46 (1974). The con-

gressional drafters of § 525 itself expressly recognized that

many kinds of government licenses can “seriously affect the

debtor’s livelihood,” and thus require a measure of protec-

tion in bankruptcy. S. Rep. No. 95-989, at 81; see id. (§ 525

enacted to provide “additional debtor protection”). Congress

enacted § 525 specifically to build upon the result in Perez v.

Campbell, 402 U.S. 637 (1971), which it understood as rec-

ognizing that revocation even of a driver’s license “would

frustrate the Congressional policy of [providing] a fresh start

for a debtor.” S. Rep. No. 95-989, at 81. Revocation of FCC

licenses would undermine that policy even more dramati-

cally; the FCC does not contend otherwise. Cf. Whiting

Pools, 462 U.S. at 203 (Congress recognized that a “reor-

ganization effort would have small chance of success .. . if

property essential to the running of the business were ex-

cluded from the estate”). Congress’s rejection of the FCC’s

request thus reflected the judgment that the bankruptcy laws

should protect debtors — even those highly dependent on

Kay Bailey Hutchinson and Hon. Max Cleland, July 16, 1999 (§ 618

Pee > aaa cane aa ariaasacaaarmeaiaeees

17

government licenses — not drive them to almost certain fail-

ure.

b. Another, related congressional concern was that giv-

ing the FCC special favored status among creditors would be

unfair to licensees’ private creditors. See, e.g., Oct. 15, 1998

Letter, supra (FCC proposal “elevates the claims of the Gov-

ernment above all others, including other creditors”). As the

discussion above shows, the bankruptcy laws exist to protect

creditors as much as debtors, and giving the FCC special

treatment would not only be inequitable, but in many cases

would inflict serious financial injury on private creditors by

depriving the debtor’s estate of assets critical to repayment

of outstanding obligations.

This is not to say that Congress saw no regulatory pur-

poses underlying the license auction and timely payment re-

quirements. The point is that Congress recognized that the

FCC also had pecuniary interests — that the FCC was, in

other words, acting as a typical creditor as much as it was

acting as a typical regulator, when it sold access to the public

spectrum to private entities for money, and extended those

entities credit toward their purchases. Congress under-

standably took account of that fact when it rejected the

FCC’s requests for special treatment under § 525.

c. A final concern voiced by members of Congress op-

posing the FCC’s request for a special exemption from § 525

was that such an exemption would actually undermine the

very Communications Act policies the FCC was citing in

support of its request. Those policies were to encourage

spectrum ownership diversification by facilitating small-

business license ownership. See 47 U.S.C. § 309(j)(3)&(4).

The concern of those opposed to the FCC’s request for spe-

cial treatment was that depriving these small businesses of

the usual protections of the Bankruptcy Code would create a

serious obstacle to obtaining the capital and financing neces-

sary for these companies to commence or maintain opera-

18

tions. As Representative Graham put the point bluntly,

“Who in the world would lend money to a radio or TV sta-

tion that bought some spectrum at the auction if you could

just come in there at any moment and just take the thing

over?” Limits On Regulatory Powers Under the Bankruptcy

Code, Hmg. Before Subcomm. Commercial and Admin Law

of House Comm. on Judiciary, 106th Cong., 2d Sess. 47

(April 11, 2000); see also id. at 55 (Rep. Graham) (“My con-

cern is that if we go the route you want us to, that the private

sector is going to be very adversely affected, and if you don’t

honor these pecuniary relationships in some fair way to the

rest of the creditors in the world who deal with these people,

that the Government is going to destroy the ability for these

people to succeed at small businesses ... or buy spectrum

licenses. And I just think that would be devastatingly bad

for the economy .. . .”); Nov. 4, 1999 Letter, supra (“Start-

up telecommunications providers will not be able to attract

the capital investment they so desperately need if their most

valuable asset is subjected to a perfected, first priority secu-

rity interest of the Federal Government.”); Torricelli Letter,

supra (changing statute to allow FCC to seize licenses of

providers in bankruptcy would be “antithetical to Congress’

original intent regarding the protection of small business’

access to spectrum.”).

That concern was well-founded, as evidenced by what

the FCC asks the Court to do here. The FCC itself recog-

nized that one of the central causes of concentration in spec-

trum ownership was comparatively inadequate capital avail-

able to non-incumbent providers. FCC Br. 3-4. To compete

successfully in the auctions, and in the development of the

spectrum, new entrants had to obtain financing and invest-

ments premised on the expected value of the license. An in-

herent part of the license-value calculation would have been

the likelihood of loss or revocation. The FCC would now

apply to these struggling new entrants an automatic “one-

strike-and-you’re-out” revocation policy — no matter how

tO ee Leet =~ —

19

much work has been done to get the business going, and no

matter how many installment payments have been made on

the license bid price, the FCC would “automatically cancel”

the license of any entity that missed even one payment.

Even worse, the regulation makes no apparent provision for

return of all or part of previous installment payments. If a

new entrant missed the last payment by a month or a week or

a day, the FCC would revoke its license and keep its money,

leaving the entity essentially valueless in many cases. There

can be little doubt that, had Congress changed the law to au-

thorize the “one strike” license cancellation policy the FCC

now seeks to enforce, potential investors would have been

strongly discouraged from investing at all, or strongly en-

couraged to put a huge price on capital debt or equity.° As

congressional opponents of special treatment for the FCC

understood, either consequence would disserve § 309(j)’s

goals of facilitating spectrum ownership by smaller, new en-

trants to the business.

3. Finally, it bears emphasis that the policy gloss the

FCC asks this Court to impose on § 525 is markedly broader

than the specific exemption the FCC sought from Congress.

By its terms § 525 applies to any “license, permit, charter,

franchise or other grant” from any “governmental unit.”

Section 525’s protections thus extend to debtors with real

estate licenses, e.g., In re Harris, 85 B.R. 858 (S.D. Fila.

1994), liquor licenses, e.g., In re Mason, 18 B.R. 817 (Bankr.

W.D. Tenn. 1982), building permits, e.g., Jn re Island Club

* &f Able, “Hot Goods” Liability: Secured Creditors and the Fair

Labor Standards Act, 87 Colum. L. Rev 644, 652 (1987) (regulation may

“increase[] the risk — and therefore the cost — of credit”); Note, Unse-

cured Creditors of Failed Banks: It’s Not a Wonderful Life, 104 Harv. L.

Rev. 1052, 1069-70 (1991) (noting that “even the possibility” of arbitrary

exercise of FDIC discretion in bank regulation could “hamper the ability

of ailing networks to obtain additional credit,” which “would increase the

cost of that credit, and the FDIC could find even more institutions in its

charge”).

20

Marina, Lid., 38 B.R. 847 (N.D. Ill. 1984), and food fran-

chises, e.g., In re Exquisito Servs., Inc., 823 F.2d 151 (Sth

Cir. 1987). What the FCC sought from Congress was an ex-

emption from § 525 only for licenses issued by the FCC.

What the FCC in effect seeks from this Court is an exemp-

tion from § 525 for ail licenses and other grants issued by ail

governmental agencies, so long as the agency can identify

some regulatory purpose supporting the license and its revo-

cation. We can be certain, however, that the regulatory pur-

poses the FCC cites as urgent here would not be as urgent in

all cases. And yet the FCC proposes no principled basis on

which the Court could hold that FCC licenses are broadly

exempt from § 525, but licenses, permits and franchises is-

sued by other agencies are not. By contrast, that is exactly

the kind of decision Congress is well-equipped to make, i.e.,

which kinds of licenses deserve special treatment under

§ 525, and under what circumstances. A decision by this

Court accepting the FCC’s argument here would tear a wide

hole through the Code, fundamentally altering the bank-

ruptcy nghts of government license-holders everywhere,

with no contextual appreciation of the need to alter those

rights.’

Judicial adoption of the policy rejected by Congress thus

would not only rework the balance struck by Congress be-

” There would also be unpredictable “ripple” effects throughout the

Code if the Court adopted other arguments the FCC is making. The

terms of art “debt” and “dischargeable,” for example, are fundamental

concepts animating much of the Code’s operation. If the Court were to

interpret those terms to exclude from § 525 the payment obligation here

simply because it reflects a regulatory function, that interpretation pre-

sumably would apply to all uses of those terms in the Code. It is impos-

sible to predict the number and nature of transactions that would be af-

fected by such an interpretation of dischargeable debt. At a minimum, it

is clear that such an approach would wreak havoc on the baseline rule

that the government should be treated like any other creditor, subject

only to limited exceptions specified clearly in the Code.

<— Soren ~o

21

tween the regulatory interest in licensing and the bankruptcy

law interest in protecting debtors and creditors. It would also

do so without any sense of the true force of the government’s

interest in all the cases that would be affected by the ruling.

The broad sweep of the ruling would thus compound the al-

ready serious unfairness of imposing a retroactive change; it

would upset expectations not only of FCC licensees and their

creditors, but also those of many other government licensees

and their creditors. Avoiding such compound and unpredict-

able results is precisely why this Court properly leaves bank-

ruptcy policy judgments to Congress.

C. The Natural Meaning Of Code § 525 Accurately Re-

flects Congress’s Intention To Afford FCC Licensees

And Their Creditors The Standard Protections Of

The Bankruptcy Code

Section 525 is, quite plainly, an explicit limitation on the

authority of all government agencies to exercise their regula-

tory power to grant, deny, and revoke government licenses.

The FCC nevertheless argues without a hint of irony that

§ 525 is inapplicable precisely because its license revocation

reflects the exercise of regulatory power. That argument

cannot be reconciled with the plain text of § 525, which — as

Congress has already adjudged in rejecting the FCC’s efforts

to obtain an exemption — is also fully consistent with rele-

vant Bankruptcy Code and Communications Act policies.

1. The FCC relies on its “regulatory purposes” argument

to escape the force of each element of § 525. Those efforts

are unavailing.

a. The FCC first argues that “[bjecause the payment ob-

ligations in the licenses are regulatory conditions, they are

not debts” under § 525. FCC Br. 30. A “debt” under the

Code is a “liability on a claim,” 11 U.S.C. § 101(12), and a

“claim” is a “right to payment,” id. § 101(5)(A). In Daven-

port, supra, this Court held that a restitution obligation im-

22

posed in a criminal proceeding, though obviously supported

by the regulatory purposes of compensating crime victims

and deterring misconduct, was nevertheless a “debt” within

the meaning of the Code:

[T]he language employed to define “claim” . . . makes

no reference to purpose. The plain meaning of a

“right to payment” is nothing more or less than an en-

forceable obligation, regardless of the objectives the

State seeks to serve in imposing the obligation.

495 U.S. at 559 (emphasis added). And in Kovacs, supra,

the Court similarly held that an environmental clean-up in-

junctive order that had been reduced to a monetary payment

obligation was also a “debt” under the Code. 469 U.S. at

278-81. The argument that the license payment obligation

here is not a “debt” cannot be reconciled with Davenport and

Kovacs.

b. The FCC next argues that § 525 does not apply be-

cause respondent’s debt is not “dischargeable” in the bank-

ruptcy case. It is not dischargeable, the FCC contends, be-

Cause it is a regulatory condition the bankruptcy court lacks

authority to alter. FCC Br. 32-34. As the FCC puts it, “[tJhe

bankruptcy court had no more authority to allow respondents

to retain the licenses despite failure to make timely payments

than the court could void other regulatory provisions of re-

spondents’ licenses, such as the requirement that they actu-

ally build out a communications network by the prescribed

deadline.” FCC Br. 32-33.

That argument is a non sequitur. An obligation to pay

money is a “debt” within the meaning of § 525; a network

build-out requirement is not. The fact that a bankruptcy

court could not “discharge” a build-out schedule that is not a

“debt” says nothing about whether the court can discharge a

payment obligation that plainly is a “debt” under § 525.

For example, even though a government education loan

23

might include obligations — such as draft registration — be-

yond the authority of a bankruptcy court to excuse, that fact

does not automatically render the loan repayment obligation

beyond the court’s power to discharge in bankruptcy. See 11

U.S.C. § 523(a)(8) (government education loan not excepted

from discharge if exception would cause debtor undue hard-

ship). Merely describing a debt as a regulatory condition, in

other words, does not put the debt on a par with all other

regulatory conditions of the license in respect to discharge-

ability.

c. Finally, the FCC contends that because it had a

regulatory reason underlying its decision to allow respondent

to retain the licenses only so long as it made timely install-

ment payments, the revocation of the licenses was not, in

fact, “solely because of” respondent’s failure to pay. FCC

Br. 36-38. That argument is also incorrect.

The FCC actually makes two distinct claims on this

point. First, it argues that the existence of an underlying

regulatory purpose behind the revocation establishes that the

FCC did not revoke the licenses solely because of the failure

to make a timely payment, but for that reason and whatever

reasons lay behind it. FCC Br. 37-38. This contention con-

fuses the subjective-intent-based concept of motive or ani-

mus with the objective question of causation, which is all

that this aspect of § 525 is directed to. The FCC’s contention

is akin to the argument long rejected in the Title VII cus-

tomer preference cases. The employers in those cases

claimed that while they had refused to hire certain employees

on the basis of race, their motive in doing so was not animus

or hostility to racial minorities, but to accommodate the pref-

erences of customers, who would not want to deal with mi-

nority employees. That argument failed: the question in

those cases was not whether the employer had a non-race-

based reason for refusing to hire minority employees, but

simply whether race was the criterion the employer used to

24

deny employment. See, e.g., Village of Bellwood v. Dwivedi,

895 F.2d 1521, 1530 (7th Cir. 1990) (Posner, J.) (“Suppose a

merchant refuses to hire black workers not because he is rac-

ist but because he believes that his customers do not like

blacks and will take their business elsewhere if he hires any.

The refusal is nevertheless discrimination, because it is treat-

ing people differently on account of their race.”); cf. Palmore

v. Sidoti, 466 U.S. 429 (1984) (use of prohibited classifica-

tion, regardless of motive behind it, triggers heightened judi-

cial scrutiny); Los Angeles Dep't of Water & Power v. Man-

hart, 435 U.S. 702 (1978) (similar).

Similarly, even if the FCC had distinct, good-government

motives behind its revocation of the licenses, the undisputed

fact is that respondent’s failure to make timely payment on a

dischargeable debt was the sole criterion that triggered revo-

cation of the licenses. That is, regardless of respondent’s

financial position or ability to use the network, the FCC

would not have revoked respondent’s licenses had it made

timely payments. And conversely, even if respondent had an

unparalleled financial position and first-rate spectrum utiliza-

tion, the FCC’s rule still would have required revocation of

its licenses had respondent failed to make a single timely

payment. Accordingly, the licenses were revoked “solely

because” respondent failed to make payments, regardless of

the motivations the FCC had for acting solely on that basis.®

* By similar analogy to employment discrimination cases, Arctic

Slope argues that the existence of a regulatory purpose renders this a

“mixed motives” situation, and that addition of the word “solely” before

“because of” in § 525 excludes such situations from § 525’s ambit. Arc-

tic Slope Br. 25. Arctic Slope is wrong. The so-called “mixed motives”

situation arises where the defendant actually acted against the individual

on the basis of two or more criteria — i.e., gender and personality — and

the question is whether the proscribed criterion can be said to have truly

caused the adverse action. E.g., Price Waterhouse v. Hopkins, 490 US.

228, 241 (1989) (plurality op.); id. at 284 (Kennedy, J., dissenting). No

such problem of causation arises where the defendant indisputably acts

25

Second, the FCC argues that § 525 erects only a barrier

to “discrimination” against licensees in bankruptcy, and that

because other licensees not in bankruptcy would also lose

their license for failure to make payments, there is no “dis-

crimination” against bankrupt licensees and, hence, no viola-

tion of § 525. FCC Br. 37. The problem for the FCC is that

the plain language of § 525 is not limited to barring “dis-

crimination” against license-holders simply “for entering

bankruptcy.” FCC Br. 37. Jn addition to that general prohi-

bition against anti-bankruptcy animus, the text of § 525 also

bars the government from using the failure of a bankrupt li-

censee to make a debt payment as the sole basis for revoking

its license. See S. Rep. No. 95-989, at 81 (§ 525 extends to

“discrimination or other action based solely on the basis of

the bankruptcy, on the basis of insolvency before or during

bankruptcy prior to a determination of discharge, or on the

basis of nonpayment of a debt discharged in the bankruptcy

case”) (emphasis added). If § 525 is to this extent a form of

affirmative protection for licensees in bankruptcy that is un-

available to other, non-bankrupt licensees, it is merely the

kind of affirmative protection for debtors in bankruptcy the

entire Code exists to provide. It assuredly does not render

the plain terms of § 525 inoperative.

on the basis of just one impermissible criterion, but asserts that the one

criterion is a statistical proxy for other, permissible motives. In that in-

stance there is only one “cause,” though there may be many motives.

Thus, even if the word “solely” appeared in Title VII, the outcome in

customer preference cases would be the same, for there is only one

“cause” in those cases — though “mixed motives” cases might be evalu-

ated differently, since they really involve mixed causes. Conversely, the

word “solely” is not superfluous under the D.C. Circuit’s reading of

§ 525, as Arctic Slope contends, Br. 25: its use in § 525 bars agencies

from revoking a license solely for failure to make a payment, but oper-

ates to allow them to revoke a license even on that basis, so long as other

conditions also justify revocation. See infra at 28-29 (discussing addi-

tional factors on which FCC could have based revocation of license).

26

2. The FCC’s efforts to escape the force of § 525 on the

basis of its asserted “regulatory purposes” fail not only the

terms of § 525’s text and recent history, but also the holding

of Perez v. Campbell, 402 U.S. 637 (1971), which the provi-

sion was intended to elaborate. The only material difference

between Perez and this case is that in Perez, the government

revoked a license for failure to pay a private debt, whereas

here the debt was to the FCC in exchange for the license it-

self. But in fact that is no difference at all, as closer scrutiny

of the FCC’s rationale for revoking the license reveals.

The FCC in this case argues that revoking the license for

failure to make timely payments was the only way it could

ensure “best use of the spectrum in the public interest.” FCC

Br. 40. Even accepting that dubious proposition as true for

the moment, but see infra at 28-29, that rationale presumably

would apply equally to a licensee’s failure to make timely

payments fo its own private creditors: in either instance, the

failure to pay would reflect financial weakness potentially

undermining the licensee’s ability to put the spectrum to full

use. Thus the FCC’s justification for revoking respondent’s

licenses for nonpayment of a dischargeable debt to the FCC

necessarily would also authorize it to revoke a license for

failure to pay any debt that is dischargeable in bankruptcy.

And that is exactly what § 525 prohibits, if its plain text, and

this Court’s holding in Perez, mean anything at all.

3. Finally, the natural meaning of § 525’s text is not in-

consistent with the Communications Act policies the FCC

cites as justification for adopting a different interpretation —

which is among the reasons why Congress did not see fit to

recast the statutory balance in the way the FCC now urges.

Section 309(j) of the Communications Act encourages

the FCC to consider the use of methods like installment

payment plans to facilitate the participation of small busi-

nesses in the auction processes and, ultimately, to promote

diversity of spectrum ownership. 47 U.S.C. § 309(j)(3)&(4).

a —

a en

Ali, ie

27

That policy would be thwarted, the FCC says, if § 525 pro-

hibits it from revoking licenses when installment payment

obligations are not met.

The FCC’s argument misapprehends both § 309(j)) and

§ 525. It is perfectly clear that nothing in § 309(j) required

the FCC to use installment plans without guaranteed credit.

The FCC’s own brief recognizes that Congress directed the

FCC only to “‘consider alternative payment schedules and

methods of calculation, including lump sums or guaranteed

installment payments’ to promote small business participa-

tion.” FCC Br. 48 (emphasis added) (quoting 47 U.S.C. §

309(j)(4)(A)). More to the point, nothing in § 309() re-

quired the FCC to use the failure to make timely payments as

the conclusive proxy for its regulatory goals of ensuring op-

timal spectrum usage. Even taken on its own terms, the

FCC’s assertion that § 309(j) encouraged use both of in-

stallment payments and of the presumption that the highest

bidder was the “best” spectrum user, FCC Br. 40, provides

no support for the FCC’s decision to condition revocation of

licenses merely on the timeliness of installment payments

made by the highest bidder. That was a decision voluntarily

made solely by the FCC, strongly influenced no doubt by its

pecuniary interest in obtaining payments for the federal

Treasury. Section 309 does not say — or imply — that the

FCC not only ought to allow installment payments, but also

ought to revoke licenses when such payments are not timely.

Accordingly, enforcing the text of § 525 to prevent the FCC

from revoking a license solely for violation of a payment

timing condition poses no conflict at all with § 309()).

The FCC also errs in its estimation of the scope of § 525.

The FCC complains that, as interpreted by the D.C. Circuit,

§ 525 would “force an agency to give an exclusive license to

a business that fails to meet a key regulatory requirement for

maintaining the license,” setting up the conflict with

§ 309(j). FCC Br. 42. Not so. It was the FCC’s own deci-

28

sion to make timely installment payments the only “key

regulatory requirement for maintaining the license.” Having

chosen to so limit itself, the FCC subjected its control over

possession of licenses to the restrictions of § 525.

That choice was not compelled by § 525. Section 525

absolutely does not bar government agencies making licens-

ing decisions from “consideration of other factors, such as

future financial responsibility or ability.” S. Rep. No. 95-

989, at 81. Nor does it

extend so far as to prohibit examination of the factors

surrounding bankruptcy, the imposition of financial

responsibility rules if they are not imposed solely on

former bankrupts, or the examination of prospective

financial condition or managerial ability .... [I]n

those cases where the causes of a bankruptcy are inti-

mately connected with the license . . . in question, an

examination into the circumstances surrounding the

bankruptcy will permit governmental units to pursue

appropriate regulatory policies and take appropriate

action without running afoul of bankruptcy policy.

H.R. Rep. No. 95-595, at 165 (1978). Accordingly, an

agency may revoke the license of a debtor in bankruptcy so

long as the trigger for revocation is something other than the

debtor’s mere presence in bankruptcy or mere failure to

make a dischargeable debt payment. See, e.g., Duffey v.

Dollison, 734 F.2d 265, 272-74 (6th Cir. 1984) (upholding

application to debtor in bankruptcy of law requiring suspen-

sion of driver’s license where driver has failed to pay judg-

ment and failed to post proof of financial responsibility); Jn

the Matter of Bradley, 989 F.2d 802, 804 (Sth Cir. 1993)

(“Section 525 does not prohibit a state from denying or re-

voking a license based upon a determination that the public

safety would be jeopardized by granting or allowing contin-

ued possession of the license, but it does prohibit a state

from exacting a discharged debt as the price of receiving or

29

retaining a license.”); Jn re Colon, 102 B.R. 421, 428 (Bankr.

E.D. Pa. 1989) (“If state law mandates the suspension or

revocation of driving privileges due to the nature of the in-

fraction or the driver’s history of traffic violations, irrespec-

tive of whether the driver promptly pays a fine, the bank-

ruptcy code will not interfere with the exercise of the police

power.”).

There are numerous ways the FCC in this case could

have avoided the force of § 525 by connecting the regulatory

requirements for maintaining licenses more tightly to its true

regulatory interests in spectrum usage, and less tightly to its

pecuniary interests in simply enforcing payment obligations.

For example, the FCC could have conditioned possession of

licenses on satisfaction of periodic network build-out obliga-

tions. The FCC could have imposed financial requirements

other than payment obligations, such as the financial respon-

sibility gules specifically suggested in the committee reports

accompanying the Code. The FCC could even have condi-

tioned license-holding on occasional totality-of-the-

circumstances inquiries into a licensee’s continued fitness to

hold a license, which could have permissibly included an

“examination into the circumstances surrounding bank-

ruptcy.” H.R. Rep. No. 95-595, at 165.

Enforcement of those or similar regulatory requirements

for licensees would have allowed the FCC to fully serve the

goals of § 309(j) without running into any § 525 limitations

whatsoever. What the FCC could not do was to make mere

failure to pay a dischargeable debt the sole, blanket proxy for

all of its regulatory considerations. As Congress has already

implicitly determined, the fact that the FCC voluntarily

chose to serve its § 309(j) goals by a mechanism that would

trigger § 525’s protections for licensees is no reason to dis-

regard those protections.

30

Ignoring § 525’s plain textual restriction on the govern-

ment’s power to revoke a license for failure to pay a dis-

chargeable debt whenever the government asserts a regula-

tory purpose for the revocation — a rule-swallowing excep-

tion appearing nowhere in the Code’s text — would do vio-:

lence not only to this Court’s practice of adhering solely to

the text, but also to the sound principle of deference to con-

gressional policymaking that underlies that practice. As we

have seen, the process of continuous policy balancing by

Congress has included the provision over the years of nu-

merous exceptions and special privileges to government

agencies analogous to the special treatment sought here by

the FCC. As we have also seen, that process has specifically

included unsuccessful efforts by the FCC to obtain for itself

the very privilege — exemption from § 525 — it now asks this

Court to confer broadly on all government agencies. If and

when Congress deems it necessary for the FCC or other

agencies to have such power, Congress will provide it. This

Court should adhere to its well-established practice of leav-

ing such policy decisions to Congress.

CONCLUSION

For the foregoing reasons, the judgment of the court of

appeals should be affirmed.

Respectfully submitted,

WALTER DELLINGER

(Counsel of Record)

JONATHAN D. HACKER

JEREMY MALTBY

O’MELVENY & MYERS LLP

555 13th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

Attorneys for Amici Curiae