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

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HUN 2)

Nos. 01-653 & 01-657

IN THE

Supreme Court of the Hnited States

/ FEDERAL COMMUNICATIONS COMMISSION,

0 , ‘| Petitioner,

wine v.

NEXTWAVE PERSONAL COMMUNICATIONS INC., ef al.,

Respondents.

ARCTIC SLOPE REGIONAL CORPORATION,

COUNCIL TREE COMMUNICATIONS, LLC, AND

VOICESTREAM WIRELESS CORPORATION,

Petitioners,

¥.

NEXTWAVE PERSONAL COMMUNICATIONS INC.., et ai.,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF AMICI CURIAE CREDITORS OF NEXTWAVE

PERSONAL COMMUNICATIONS, INC.,

SUPPORTING RESPONDENT

LAURENCE H. TRIBE

Counsel of Record

CHARLES FRIED

ELIZABETH WARREN

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495-4621

June 2002

WILSON-EPES PRINTING CO.. INC. — (202) 789-0096 - WASHINGTON, D. C. 20001

BEST AVAILABLE COPY

QUESTION PRESENTED

Whether the Federal Communications Commission (“FCC”)

acted lawfully in retroactively canceling NextWave’s

communications licenses for failure to make timely installment

payments while in Chapter 11 proceedings, and in denying

NextWave any opportunity to cure, because the FCC was acting

in a “fundamentally regulatory” capacity and was therefore

exempt from the usual provisions of the Bankruptcy Code.

})

TABLE OF CONTENTS

Pages

QUESTION PRESENTED .................0.000005. i

TABLE OF CONTENTS ..............-cececeeceeees ii

TABLE OF AUTHORITIES ....................24.. iv

INTEREST OF AMICI CURIAE .... 2.0... 6000 eeeeuees l

INTRODUCTION AND SUMMARY OF ARGUMENT .. 2

DET cktdeserccveccensvccesecscecececceees 6

I. THE FCC IS IMPROPERLY SEEKING

SPECIAL TREATMENT AT THE EXPENSE OF

EEE ce ev encecccodcoeccccececees 6

A. The FCC Is Seeking Special Treatment

That Congress Denied It. ................... 7

B. NextWave’s Commercial Creditors

Reasonably Relied on the FCC’s

Repeated Acknowledgments That It Was

Bound by Ordinary Bankruptcy Rules. ....... 10

Il. THE ASSERTION OF A “REGULATORY

PURPOSE” DOES NOT DISPLACE THE

DEES sovccccccececscecesecces 16

A. The FCC’s Purported Cancellation of the

Licenses Violates Section 525(a). ........... 16

1. The Government’s Effort to

Create a “Regulatory” Exception Should

2. Section 525(a) Cannot Be Evaded By

Describing Payment As a “Condition” of

PEED oe seen theds cecdceteecunce 21

B. The FCC’s Purported Cancellation of the

Licenses Violates NextWave’s Statutory Right to

Confirm a Plan that Permits NextWave to Cure

Any Default and Retain the Licenses. ........ 23

II]. THE FCC’S POSITION WOULD FRUSTRATE

THE PURPOSES OF THE COMMUNICATIONS

Ee $he6n eu edcnvowedsudenbesedeuuceeneulwces 25

CONCLUSION

TABLE OF AUTHORITIES

Cases

Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990) ......... 6

Ashwander v. Tennessee Valley Auth.,

ED ind i ccbadededsddudceneseess 15

Associates Commercial Corp. v. Rash,

ee 29

Astoria Fed. Savings & Loan Ass'n v. Solimino,

ee ieee sc eieaseueasdens 9

Bank of Am. Nat'l Trust & Savings Ass'n v. 203 North

LaSalle St. Partnership, 526 U.S. 434 (1999) ......... 7

Benner, In re, 156 B.R. 631 (Bankr. D. Minn. 1993) ..... 25

Board of Trustees v. Howren (In re Howren),

10 B.R. 303 (Bankr. D. Kan. 1980) ................ 17

Brattleboro Hous. Auth. v. Stoltz,

Cee ees od eee de cnndaess 24

Cisneros v. Alpine Ridge Group, 508 U.S. 10 (1993) ..... 25

Cohen v. De La Cruz, 523 U.S. 213 (1998) ............. 21

Couture, In re, 225 B.R. 58 (D. Vt. 1998) .............. 22

Cox, In re, 186 B.R. 744 (Bankr. N.D. Fla. 1995)........ 25

Curry, In re, 148 B.R. 966 (S.D. Fla. 1992) ............ 22

Day, In re, 208 B.R. 358 (Bankr. E.D. Pa. 1997) ........ 22

Dembek, In re, 64 B.R. 745 (Bankr. N.D. Ohio 1986) .... 17

Eastern Enterprises v. Apfel, 524 U.S. 498 (1998) ....... 15

Ehrenberg v. Southern California Permanente Med.

Group (In re Moses), 167 F.3d 470 (9th Cir. 1999) .... 25

Elsinore Shore Assocs., In re,

66 B.R. 723 (Bankr. D.N.J. 1986) .............. 18, 22

Entz-White Lumber and Supply, Inc.,

In re, 850 F.2d 1338 (9th Cir. 1988) ............... 24

Ex parte Yerger, 8 Wall. 85 (1869) ............-2-555. 10

FDA v. Brown & Williamson Tobacco Corp.,

CD do vecdd nese eeegsoeeseseoeeces 9

Fintel, In re, 10 B.R. 50 (Bankr. D. Or. 1981) .......... 17

Geffken, In re, 43 B.R. 697 (Bankr. N.D. Ohio 1984) ..... 22

General Dev. Corp., In re, 163 B.R. 216 (S.D. Fla. 1994) . 22

Gibbs v. Housing Auth. of City of New Haven,

76 B.R. 257 (D. Conn. 1983) .................. 17, 22

Gordon, Matter of, 217 B.R. 973 (Bankr. S.D. Ga. 1997) . 24

Hagen v. Utah, 510 U.S. 399 (1994) ... 2.22... ee. 10

Harris, In re, 85 B.R. 858 (Bankr. D. Colo. 1988). ....... 18

Heath, In re, 3 B.R. 351 (Bankr. N.D. Ill. 1980) ......... 17

Home Bldg. & Loan Ass'n v. Blaisdell,

RE ee 10

Jacobs, In re, 149 B.R. 983 (Bankr. N.D. Okla. 1993) .... 18

Johnson v. Home State Bank, 501 U.S. 78 (1991) ..... 10, 21

Kaiser Aetna v. United States, 444 U.S. 164 (1979) ...... 15

Kan. Pers. Communications Servs., Ltd., In re:

252 B.R. 179 (Bankr. D. Kan.) .................... 24

256 B.R. 807 (D. Kan. 2000) .................. 20, 24

Kesler v. Department of Public Safety,

EN EN ee 17

Kokoszka v. Belford, 417 U.S. 642 (1974)... 2.2.2.2... 10

La Rose v. FCC, 494 F.2d 1145 (D.C. Cir. 1974) ........ 20

Lambillotte, In re, 25 B.R. 392 (Bankr.

Re ra a ees oe 17

Lee v. Board of Higher Educ., | B.R. 781 (S.D.N.Y. 1979) 17

Long Island Railroad Co. v. Aberdeen & Rockfish Rail

Road Co., 439 U.S. 1 (1978) ...... 0... cece eee ee 25

Melvin Beene Produce v. Agricultural Mktg.

Serv., 728 F.2d 347 (6th Cir. 1984) ................ 19

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984) ....... 10

Ogden v. Saunders, 25 U.S. (12 Wheat.) 213 (1827) ..... 10

Ohio v. Kovacs, 469 U.S. 274 (1985) ............... 5,21

Patterson v. McLean Credit Union, 491 U.S. 164 (1989) .. 10

Patterson v. Shumate, 504 U.S. 753 (1992) ............. 25

Pennsylvania Dep't of Public Welfare v.

Davenport, 495 U.S. 552 (1990) ............. 5, 20, 21

Perez v. Campbell, 402 U.S. 637 (1971) ............... 17

Pine Gate Assocs., In re:

2 B.C.D. 1478 (N.D. Ga. 1976) ..............0005. 30

3 B.C_D. 301 (NLD. Ga. 1977) .....ccccccscccccess 30

3 B.CD. 813 CLD. Ga. 1977) ... nc cccccccccccess 30

SB.CD. SOS CLD. Ga. 1977) ....cccccccccccccess 30

Posadas v. National City Bank, 296 U.S. 497 (1936) ..... 10

Rake v. Wade, 508 U.S. 464 (1993) . 2... 6... eee eee ee 23

Reitz v. Mealey, 314 U.S. 33 (1941) .... 2... cece ee eee 17

Ridgely Communications, Inc., In re,

139 DR. 374 CD. BEG. 199Z) .. nc cececcccccccccecs 20

Rodriguez v. United States, 480 U.S. 522 (1987) ........ 26

RTC v. Firstcorp., Inc. (In re Firstcorp., Inc.),

O73 F.2G B43 €4th Cit. IDSA) 2. cccccccccccccccees 24

Second Thursday, 33 F.C.C.2d 703, recon. denied,

SO OEE oc cccecccecececcccceccess 20

Southeast Co., In re, 868 F.2d 335 (9th Cir. 1989) ....... 23

St. Mary Hosp., In re, 89 B.R. 503 |

(Bankr. E.D. Pa. 1968) ..........cccceccccceceees 17

Sudler, In re, 71 B.R. 780 (Bankr. E.D. Pa. 1987) ....... 17

Szymecki, In re, 87 B.R. 14 (Bankr. W.D. Pa. 1988) ... 17, 22

Taddeo, In re, 685 F.2d 24 (2d Cir. 1982) ...........4.5. 23

Tell, In re, 38 B.R. 327 (N.D. Ill. 1983) ...........465- 18

Union Bank v. Wolas, 502 U.S. 151 (1991)... 2.2.6... 656- 8

United States v. James Daniel Good Real

Property, 510 U.S. 43 (1994) «2... 6... 15

United States v. United Continental Tuna

Corp., 425 U.S. 164 (1976) 2.2... 6. cece eee ees 10

United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) .. 8

United States v. Winstar, 518 U.S. 839 (1996) .......... 15

Walker, In re, 64 B.R. 751 (Bankr. S.D. Ohio 1986) ..... 17

Walker, In re, 927 F.2d 1138 (10th Cir. 1991) .......... 18

Welch, In re, 3 FCC Red. 6502 (1988) ...........0065. 20

Williams, In re, 158 B.R. 493 (Bankr. D. Id. 1993)... . 18, 22

Statutes, Regulation and Rule

Packers and Stockyard Act, 1921, 7 U.S.C. §§ 181-299 ... 19

Perishable Agricultural Commodities Act, 1930,

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PN UII. « vv nccvecvecécccecccecsecauig 19

11 U.S.C. § 362(aNS) oo. cc ccc c cece ewe c ccc, 19

a ee 8

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BO Ms OED ic cvccccccccccccccececeeecencs 19

I 19

11 U.S.C. § 362(b)(13) 2... cece cc eee eee, 19

11 U.S.C. § 362(b)(16) 22.0... eee eee ee. 19

_ 1 REFS Eeg enSe pe 29

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11 U.S.C. § 365(d)(5)-(d)(9) 2... ccc cece ee eee. 19

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1 ETT TELE Ae ae as 29, 30

OIE: FP: 29

| ES TERETE TR: 23, 25

4 fT RS RAREST ogy ee 24

11 U.S.C. § 1123(ay(S(G) .................. 6, 23, 25, 29

ORES r anes ee Poy 25

Pe ee 6, 23, 24, 29

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Other Authorities

Amendment of the Commission's Rules Regarding

Installment, 13 FCC Red. 8345 (1998) ............. 13

Amendment of the Commission's Rules Regarding

Installment, 12 F.C.C.R. 16,436 (1998) ............. 13

Brief of the County of Westchester in

No. 99-5063 (2d Cir. filed Mar. 6, 2000) ............ 15

145 Cong. Rec. $14104 (daily ed. Nov. 5, 1999) ......... 9

COLLIER ON BANKRUPTCY (15 ed. 2001):

WA SENSAnees ceases ceessenccosevecessseeens 29

SE Bb dbdecedbbede HeeSUEadeceeceesecesstene 23

SW sehUSesebdehanbeeesensscecsecedeseseses 30

FCC Public Notice in DA 98-547

i Ph Ds «kcvoncesésevsseecesooes 14

H. REP. No. 95-595 (1977), reprinted in

1978 U.S. CODE CONG. & ADMIN. NEWS 6322 ....... 18

H.R. Rep. No. 801, 105" Cong., 2d Sess. (1998) ........ 27

Letter of Prof. Douglas Baird, Vice Chair of National

Bankruptcy Conference, to Rep. Henry Hyde,

ETE ccccceGacbnudceseocesesceccce 11

Letter from Chief Counsel for Advocacy, U.S. Smal!

Business Administration to Chairman Reed

Hundt, FCC, dated Sept. 8,1997 .................. 1]

RCR Magazine, Sept. 28,1999 ...................... 14

Rev'd UCC § 9-109(a){1), comment 1 ................ 22

S. Rep. No. 989, 95" Cong., 2d Sess. (1978) ............ 23

INTEREST OF AMICI CURIAE

Creditors of NextWave Personal Communications, Inc.,

including the Official Committee of Unsecured Creditors (“the

Creditors Committee”) and BFD Communications Partners, L.P.

(“BFD”), respectfully submit this brief amici curiae in support

of respondents.’

The Creditors Committee is the official representative of the

thousands of businesses and investors who extended hundreds of

millions of dollars in services, goods, and financing to

NextWave to enable NextWave to acquire its licenses, build out

its network, and fund its operations.’ This large and diverse

group includes corporate investors such as Sony, QUALCOMM,

and Hughes Network Systems; hundreds of small businesses

which provided supplies and services toward the build-out of the

network; and large investment funds which manage money for

banks, pension funds, and insurance companies.

The Creditors Committee has a vital interest in ensuring that

the Federal Communications Commission (“FCC’’) is subject to

the same rules the Bankruptcy Code applies to all other creditors.

The members of the Creditors Committee stand to lose hundreds

of millions of dollars if this Court sustains the FCC’s contention

that it is exempt from important provisions of the Code and is on

' Pursuant to Rule 37.6, amici c.rtify that no counsel for any party authored

this brief in whole or in part. No persons other than the amici curiae or their

counsel made a monetary contribution to the preparation or submission of this

brief. Letters reflecting the parties’ consent to the filing of this brief have

been submitted to the Clerk. In July 2000, Elizabeth Warren briefly served

as a consultant to special counsel for respondent NextWave Personal

Communications, Inc. with respect to a petition for rehearing. Since then, she

has not represented any party in this case in any way.

? The Bankruptcy Code provides that, as soon as practicable after the

commencement of a Chapter | | case, “the United States Trustee shall appoint

a committee of unsecured creditors holding unsecured claims” against the

debtor. 11 U.S.C. § 1102(a)(1). The Creditors Committee’s function is to

represent the interest of general unsecured creditors in the debtor’s Chapter

11 case, and § 1109(b) of the Code grants committees the right to appear and

be heard on any issue in a Chapter 11 case.

that basis allowed retroactively to cancel NextWave’s licenses.

Under its reorganization plan, NextWave proposes to pay in full

not only the FCC’s claim, but also each of the claims of the

Creditors Committee’s constituents (whose claims exceed $500

million).

BFD is NextWave’s post-petition lender and is not otherwise

affiliated with NextWave. As the Bankruptcy Code

contemplates, 11 U.S.C. §§ 364, 1101, BFD and other lenders

made various loans after the commencement of the Chapter 1 1

case in order to allow NextWave to continue operating. In

conjunction with this financing, the lenders took liens on the

proceeds of NextWave’s licenses to secure repayment of its

loans. As the Code requires, NextWave and the lenders obtained

the bankruptcy court’s prior approval of these liens upon notice

to the FCC. Significantly, the FCC never objected to the liens

on the ground that the licenses had canceled (or could be

canceled) for nonpayment during NextWave’s bankruptcy case.

On the contrary, the lenders relied on the FCC’s repeated

acknowledgments that NextWave’s licenses would not cancel

while NextWave attempted to reorganize. Accordingly, BFD

requests that this Court affirm the judgment of the court of

appeals.

INTRODUCTION AND SUMMARY OF ARGUMENT

Amici reasonably relied on the FCC’s longstanding and

publicly articulated position that, having chosen to create

standard debt obligations as part of its installment payment

scheme, it was bound by the same bankruptcy rules as all other

creditors. At a time when the licenses were increasing in value,

the FCC changed its tune and is now seeking special bankruptcy

treatment, even though Congress has repeatedly rejected its pleas

for such treatment. Not satisfied with its multiply protected

status under the Bankruptcy Code as a fully secured creditor —a

status it actively sought by taking installment notes, securing

liens, and filing UCC financing statements — the FCC insists on

special treatment as a kind of super-creditor, armed with the

power either to participate in the bankruptcy process or to exit it

at will, as its financial interests might dictate.

The Government argues for this judicially created bankruptcy

exemption on the ground that the FCC is acting in a

“fundamentally regulatory” capacity. Govt. Br. 15. According

to the Government, this controversy is not about the money but

the principle of the thing: the Commission’s ability to enforce

the discipline of its auction mechanism and to punish “insincere

bidding.” Govt. Br. 29. Thus, concludes the Government,

applying the Bankruptcy Code to prevent the Commission from

revoking the bankrupt estate’s spectrum licenses “would create

clear incentives for speculation by permitting heads-I-win, tails-

you-lose opportunities: If the value of the spectrum increased,

winning bidders could eventually sell the license at a profit; and

if the value decreased, licensees could seek to renegotiate license

terms in bankruptcy court.” /d. at 32.

The Government’s argument is both wrong and irrelevant. It

is wrong because NextWave did not make its bid on the gamble

that it could sell its licenses at a profit if their value went up —a

purpose in any event precluded by the anti-assignment

provisions of Section 310(d) of the Communications Act — but

with the firm intention of itself rapidly developing the technical

and commercial structures for the full utilization of the licenses.

This is exactly the intention expressed by Congress in Sections

309(j(3)(A) and (D). It is captious to suggest that, because

NextWave did not have the full amount of its bid in hand in

disposable cash at the time of its bid, it was merely a gambler

gaming the system. Of course, NextWave, or any other

successful bidder, would seek equity and non-equity partners to

finance not only the licenses but also the extensive (and

expensive) physical and commercial infrastructures necessary to

offer telecommunications service. If Congress had contemplated

an exclusively cash-on-the-barrel-head system, in which only

bidders with both technical expertise and vast resources could

participate, it would not have suggested that the FCC consider

the use of “guaranteed installment payments” to provide

“economic opportunities for a wide variety of applicants,

including small businesses ... .” 47 U.S.C. § 309(j)(4)(C).

NextWave is exactly the kind of bidder, and amici are exactly

the kinds of creditors, that Congress sought to encourage.

The Commission’s story is wrong for another reason.

NextWave was unable to meet its payment obligation not

because it had gambled extravagantly (and amici did not lend

and invest as an imprudent gamble), but because beginning in

1997 the telecommunications sector experienced a general

market downturn in which some seventy-seven companies have

filed for bankruptcy.

In any event, this dispute is no longer solely about

NextWave. It is about the rights of its creditors who lent and

invested money in a venture that may have entailed risk — but

risk whose boundaries are set out in the bankruptcy laws. As

lenders they were entitled to expect that they would be treated

like other lenders of their class. As investors they were entitled

to expect that their investments were subject to no greater hazard

than the law imposes. They took a risk, but it is the very risk

Congress in Section 309(j)(3)(A) wanted small businesses and

their creditors to take.

The arrangements made in the seventy-seven

telecommunications bankruptcies since 1997 show how the Code

in fact promotes communications policy by preserving ongoing

businesses while they use the breathing space afforded by the

Code to rehabilitate themselves. Yet the FCC proposes

retroactively to single out the NextWave creditors from other

creditors in the industry that have made investments on the same

assumption of the operation of the bankruptcy laws — perversely,

at just the moment that NextWave was poised to implement a

full payment plan.

Bidders such as NextWave require third-party financing in

order to acquire licenses and build out their networks. Such

financing will disappear if the FCC’s arguments in this case are

accepted, for no rational creditor would invest in a company like

NextWave if the FCC were authorized in the event of bankruptcy

to revoke the essential licenses on which the company’s business

plan depends. The Congress that enacted Section 309(j) could

not possibly have shared the view of the FCC’s regulatory

powers that the Government asserts in this case.

The Government’s argument is also legally irrelevant in the

sense that there exists no basis for this Court to craft a

“regulatory exception” to the Bankruptcy Code, nor any basis for

ignoring the clear words of Section 525(a) that “a governmental

unit may not... revoke. . . a license, permit, charter, franchise,

or other similar grant . . . solely because [the] debtor . . . has not

paid a debt that is dischargeable in the case under this title.” 11

U.S.C. § 525(a). Section 525(a) necessarily applies when the

Government is acting in a regulatory capacity through the

issuance of licenses and similar grants. The FCC’s plea for

special treatment echoes similar claims by other governmental

agencies that this Court has repeatedly rebuffed. See

Pennsylvania Dep't of Public Welfare v. Davenport, 495 U.S.

§52 (1990); Ohio v. Kovacs, 469 U.S. 274 (1985). That line of

precedent controls here and establishes an approach to

interpreting the Bankruptcy Code and Communications Act in

which Congress has acquiesced. When Congress decides to

grant special bankruptcy status to a particular government

agency or program, it does so explicitly: it has created special

regulatory exceptions to the automatic stay provision, Section

362(b)(4); to the executory contracts provision, Section 365; to

the discharge provision, Section 523(a); and to Section 525(a)

itself.

In stark contrast, Congress has not created any FCC

exception to the Bankruptcy Code. Indeed, Congress has

squarely rejected legislative proposals to confer special

bankruptcy status on the FCC. If NextWave may be deprived of

its licenses because it did not promptly pay required

installments, then so may every debtor that falters in its

monetary obligations to some unit of government — high or low,

federal, state or local. If NextWave and its creditors may be

punished for venturing to seek the public’s business on credit —

if that qualifies as “gaming” the system — then Section 525(a)

might as well be read out of the Code. Because governmental

agencies frequently appear as creditors in bankruptcy cases,

accepting the FCC’s argument in this case will set a disastrous

precedent that will disrupt bankruptcy cases nationwide.

The judgment below must in any event be affirmed, on the

ground that the FCC’s cancellation of the licenses violated

NextWave’s right to “cure” any default under Sections

1123(a)(S)(G) and 1124(2)(a). Under its Chapter 11 plan,

NextWave proposes to pay the FCC in full, with interest and late

fees. Indeed, had the FCC not announced its surprise

cancellation, NextWave already would have emerged from

bankruptcy, paid the FCC and all other creditors in full, and put

the spectrum covered by its licenses to immediate use. If the

FCC is permitted to proceed with the cancellation and resale of

NextWave’s licenses, the FCC will be the only party to receive

satisfaction of its claim — three times over, for the Commission

claims that the licenses are now worth $15 billion. Govt. Br. 12.

The FCC’s position thus violates the critical bankruptcy

principle of equality among creditors.

ARGUMENT

I. THE FCC IS IMPROPERLY SEEKING SPECIAL

TREATMENT AT THE EXPENSE OF OTHER

CREDITORS.

From the perspective of the Bankruptcy Code, this case is

remarkable only in its ordinariness. NextWave seeks to do what

several hundred thousand debtors do every year when they

declare bankruptcy: pay what the law requires them to pay to

their secured and their unsecured creditors, reorganize their

affairs, and emerge from bankruptcy. The FCC has no

experience or expertise in bankruptcy matters, and its views

regarding the Code are of course not entitled to deference. See

Adams Fruit Co. v. Barrett, 494 U.S. 638, 649-50 (1990).

Having voluntarily assumed secured creditor status, the FCC

should be governed by the same rules ‘as every other secured

creditor.

A. The FCC Is Seeking Special Treatment That Congress

Denied It.

The bankruptcy system was developed to address a “common

pool” problem: if each individual creditor relies on unilateral

debt-collection remedies to seize as much of the debtor’s estate

as he can for himself, the creditors as a group may be worse off

overall. Bankruptcy responds to this economically destructive

behavior by enforcing a system of cooperation among creditors.

The Bankruptcy Code’s efficacy depends on the ability of a

bankruptcy court to marshal a debtor’s assets and prevent

creditors, including governmental agencies, from engaging in

individual debt collection activities that diminish the debtor’s

value or prevent the orderly administration of the debtor's

affairs. See Bank of Am. Nat'l Trust & Savings Ass'n v. 203

North LaSalle St. Partnership, 526 U.S. 434, 453 (1999)

(purposes of Chapter 11 are “preserving going concerns and

maximizing property available to satisfy creditors”).

Government agencies appear frequently as creditors in

bankruptcy cases, whether to collect license fees, judgments, or

tax liens. If they are accorded super-creditor status, or are

otherwise immunized from the usual bankruptcy rules that

govern every other creditor, then the administration of

bankruptcy cases will be severely disrupted and the basic

purpose of Congress will be frustrated. Not only will post-

petition lending come to an immediate halt for any company

dependent on a government license, but the effects would ripple

through the marketplace in the start-up and expansion

investment phases for any company.

The ability of any creditor to ignore the Bankruptcy Code’s

provisions and act on its own initiative jeopardizes the

congressional scheme for the rehabilitation of bankrupt debtors.

In this case, for example, NextWave has long been prepared to

consummate its Chapter | 1 plan, which would permit NextWave

to pay its creditors in full (including the FCC), with interest and

late fees, retain its assets, provide employment for its workers,

produce a return for its investors, and permit the continued

construction and operation of its network. Now that it believes

it can re-sell the licenses for more money, the FCC wants none

of this. It asserts its own short-term institutional interest to the

detriment of NextWave’s other creditors, employees, and

customers, in violation of the “prime bankruptcy policy of

equality of distribution among creditors of the debtor.” Union

Bank v. Wolas, 502 U.S. 151, 161 (1991).

The Bankruptcy Code does not grant federal agencies

immunity from the requirements of the statute. To the contrary,

Section 106 of the Code expressly provides for the application

of the Code to agencies like the FCC. See 11 U.S.C. § 106(a)

(“governmental units”); id. § 101(27) (defining “government

unit” to include federal agencies). Thus, in United States v.

Whiting Pools, Inc., 462 U.S. 198 (1983), this Court declined to

create a special Internal Revenue Service exception to the Code

(there, the “turnover” provision of Section 542(a)). This Court

opined that “[w]e see no reason why a different result should

obtain when the IRS is the creditor. The Service is bound by

§ 542(a) to the same extent as any other secured creditor.” /d. at

229. “Nothing in the Bankruptcy Code or its legislative history

indicates that Congress intended a special exception for the tax

collector... .” Jd.

This lesson is especially salient here, because Congress has

repeatedly rejected requests for an FCC exemption from the

Bankruptcy Code in light of the potential adverse impact on

creditors. In fact, Congress declined to enact even more modest

relief — an FCC exception to the automatic stay provision of

Section 362(b) — than the Commission seeks here.’ Having been

> In a letter dated May 12, 2000, Members of the House Judiciary

Committee explained that “[e]very member of the [Commercial and -

Administrative Law] Subcommittee present at the hearing expressed his

turned down by Congress, the FCC now asks this Court for an

even more ambitious exemption from Section 525(a). See FDA

v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 144

(2000) (considering congressional rejection of bills granting the

FDA jurisdiction over tobacco).

Congress enacted Section 309(j) of the Communications Act

against the background understanding that federal agencies are

governed by the Bankruptcy Code. There is no conflict between

the two statutes involved in this case, but if there were it would

be resolved by a fundamental principle governing the orderly

development of federal statutory law: Whenever Congress enacts

a statute and entrusts a federal agency to apply its terms or to fill

in gaps to implement that statute’s policies, there is at the very

least a strong presumption (on which creditors can rely) that the

agency is not exempt from preexisting background federal

statutes, except where the laws expressly so provide.

“(Legislative repeals by implication will not be recognized,

insofar as two statutes are capable of coexistence, ‘absent a

clearly expressed congressional intention to the contrary.’

concern or disagreement with the FCC’s position that it is exempt from the

automatic stay provision — a position contrary to congressional intent when it

enacted section 362(b) in 1997. . . . [The FCC’s proposals} conflict with one

of the Bankruptcy Code’s fundamental tenets that all similarly situated

creditors be treated equally absent significant public policy reasons warranting

some form of preferred treatment (e.g., police and regulatory enforcement

officials, spousal and child support claimants, victims of fraud). These

proposals, however, would endow the FCC with more protections than

virtually any other creditor, including the Internal Revenue Service, has under

the current bankruptcy law. . . . If enacted, this proposed legislation could

potentially destroy a debtor's prospect for economic rehabilitation and deprive

creditors of a major source of repayment.” See 145 Cong. Rec. 14104 (daily

ed. Nov. 5, 1999) (Johnson Amendment No. 2523 to Bankruptcy Reform Act

of 1999, S. 625).

* Astoria Fed. Savings & Loan Ass'n v. Solimino, 501 U.S. 104, 109 (1991)

(citation omitted); see also Hagen v. Utah, 510 U.S. 399, 416 (1994); United

States v. United Continental Tuna Corp., 425 U.S. 164, 168 (1976); Posadas

v. National City Bank, 296 U.S. 497, 503 (1936); Ex parte Yerger, 8 Wall. 85,

This Court has recognized the particular importance of this rule

in harmonizing federal statutes with the Bankruptcy Code.‘

B. NextWave’s Commercial Creditors Reasonably

Relied on the FCC’s Repeated Acknowledgments

That It Was Bound by Ordinary Bankruptcy Rules.

The FCC was nowhere compelled by Section 309(j) to enter

into a creditor-debtor relationship with bidders. Although

Section 309(j) of the Communications Act suggested the

possibility of using installment payments of some kind, it also

suggested alternative methods of encouraging small business

participation in auctions. 47 U.S.C. § 309(j)(4)(A). Yet the

FCC deliberately designed its system of installment payments to

create a debtor-creditor relationship. The FCC recognized the

attendant risk. “By allowing payment in installments,” the

Commission stated, “the government is in effect extending credit

to licensees... .” Pet. App. 4a. In 1998 the FCC decided to

— installment payments as a financing method. Pet. App.

105 (1869). Cf Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 257-62 (1827)

(contracts, as forms of private law, are deemed to be undertaken subject to the

prior law, particularly bankruptcy law); Home Bldg. & Loan Ass'n v.

Blaisdell, 290 U.S. 398, 435 (1934) (prior law includes, for this purpose, the

underlying “postulate(s] of the legal order” even when not reduced to positive

enactments). On the collaborative relation between Congress and the Court

in the matter of construing federal statutes, see Patterson v. McLean Credit

Union, 491 U.S. 164, 172-73 (1989).

* See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 521-23 (1984)

(Bankruptcy Code rather than NLRA governed the assumption or rejection of

collective bargaining agreement); Kokoszka v. Belford, 417 U.S. 642, 650-52

(1974) (Bankruptcy Act rather than Consumer Protection Act governed

garnishment of certain property); see also Johnson v. Home State Bank, 501

U.S. 78, 86 (1991) (court must “[p}resum{e] . . . that Congress was familiar

with the prevailing understanding of ‘claim’”).

. See Pet. App. 91a (“the culprit was installment payments”) (statement of

Commissioner Furchtgott-Roth); Second Report and Order, 12 FCC Red.

16,436, 16,502 (1997) (“the Commission, as a creditor, ought to behave in a

Until January 12, 2000, the FCC itself repeatedly

acknowledged that it wore the hat of a prepetition creditor,

bound by the ordinary bankruptcy rules that apply to all other

creditors. As a result, the FCC induced DIP lenders to advance

millions of dollars to NextWave and other creditors to continue

doing business with the company. Amici would have been paid

in full (along with the FCC) in January 2000, if the Commission

had not repudiated its prior position. Amici have now sat

stranded for thirty months after their reliance on the FCC’s

representations.

From the beginning, the FCC had NextWave sign promissory

notes for the licenses; took security interests (liens) in each of

the licenses; and perfected its interests by filing UCC financing

statements. Pet. App. 2a, 5a, 40la-416a. The FCC’s own

regulations treated NextWave’s payment obligation as a debt.

See 47 C.F.R. § 1.2110(g)(4)(iv) (license holder in default for

nonpayment “will be subject to debt collection procedures, if the

payment due on the payment resumption date. . is more than

ninety (90) days delinquent”). These pre-bankruptcy actions by

the FCC were undertaken long before litigation commenced in

this case and did not reflect any attempt to “hedge” against

unfavorable court rulings. When NextWave filed for

bankruptcy, the FCC continued its pattern of behaving as an

ordinary creditor by submitting proofs of claim in NextWave’s

bankruptcy case asserting debts in excess of $4 billion,

commercially reasonable manner”) (statement of Chairman Hundt) (emphasis

added); Letter from Chief Counsel for Advocacy, U.S. Small Business

Administration to Chairman Reed Hundt, FCC, dated Sept. 8, 1997, at 4

(“[T]he FCC operates not only as a regulator and banker/debt-collector, but

also serves in the capacity of government-as-contractor.”); Letter of Prof.

Baird, Vice Chair of National Bankruptcy Conference, to Rep. Henry

Hyde, dated Feb. 8, 2000 (the FCC “wears the hat of a prepetition creditor.

It entered into a transaction with NextWave in which it agreed to issue a

license in return for a promissory note. As an entity that is owed a fixed sum,

the FCC should participate in the bankruptcy process on the same basis as any

other creditor.”).

representing the amount of installment payments owed to the

FCC. Pet. App. 37a.

The bankruptcy court identified “countless written and oral

utterances and acts of the FCC” during the bankruptcy

proceeding in which the FCC repeatedly acknowledged that

NextWave’s licenses were subject to the protections of the

Bankruptcy Code. Pet. App. 135a; see also id. at 2la-22a. For

example, the FCC represented in court that “NextWave will still

enjoy bankruptcy protection from collection of C block license

payments pending reorganization of its business affairs,” Pet.

App. 181a; that “[dJuring the pendency of the bankruptcy, the

Bankruptcy Court and the automatic stay would hold creditors

at bay, including the Federal Communications Commission,” id.

at 182a; and that cancellation of the licenses “hasn’t [happened]

in this case due to the automatic stay.” Jd. The bankruptcy court

found that “at no time prior to the January 12 [2000] Declaration

did the FCC ever assert the position, or even intimate,” that

NextWave’s licenses had automatically canceled. /d. at 148a

(emphasis in original). “To the contrary, the FCC made repeated

declarations in judicial proceedings utterly inconsistent with the

notion that NextWave’s Licenses automatically canceled in

January 1999, and all three Federal courts which have issued

rulings in these proceedings have done so upon the assumption

that the licenses were not cancelled.” Jd. In addition, “the

parties . . . spen[t] millions of dollars in litigation costs, DIP

lenders . . . continue[d] lending millions of dollars secured by the

licenses, [and NextWave] continue[d] to expend money in

preparation to build out its PCS systems,” “all on the assumption

that the licenses ha[d] not cancelled.” Jd. at 154a. The

per judge described the FCC’s about-face as “shocking.”

. at 135a.

The FCC never sent NextWave an invoice for installment

payments, even though it provided licensees who had not filed

for bankruptcy with new payment schedules in the summer of

1998 and payment reminders in July and October 1998. CAJA

925.’ In these restructuring orders, the FCC described licensee

payment obligations as “debts.”* The FCC took no action to

cancel NextWave’s licenses when it did not make its first

interest payment in October 1998. Had the FCC believed that

the licenses canceled automatically in October 1998, as it now

contends, there would have been no need to wait fifteen months

to seek cancellation — especially in light of the Commission’s

professed desire to put the spectrum to use without delay.

Moreover, although the October 1998 payment date applied

equally to NextWave’s C- and F-block licenses, and despite the

fact that NextWave made no payments on the F-block licenses

while in bankruptcy, the FCC never sought to lift the automatic

stay to allow for cancellation of the F-block licenses. The FCC

told the bankruptcy court that “[t]here is no trigger for the

automatic cancellation . . . to date with regard to [NextWave’s]

the F-block licenses,” and that NextWave “can comply with...

payment obligations” and keep its F-block licenses. Pet. App.

172a n.12.

Indeed, ten months after the purported cancellation date, the

FCC continued to reaffirm that the licenses had not canceled.

On August 10, 1999, the FCC signed a “term sheet” with Nextel

(a competitor of NextWave) providing “for the transfer of

substantially all of the assets of the NextWave Debtors,

including the Licenses, to Nextel.” CAJA 538-39. The FCC’s

agreement with Nextel was premised on the assumption, shared

by all parties, that the licenses had not canceled but continued to

be held by NextWave. In a letter dated September 27, 1999 to

Rep. Bliley, the FCC Chairman stated that “the government

would support an alternative reorganization plan proposed by

” Citations to the Joint Appendix in the court of appeals are styled “CAJA

* See Amendment of the Commission's Rules Regarding Installment, 13 FCC

Red. 8345, 4 31 (1998); Amendment of the Commission's Rules Regarding

Installment, 12 F.C.C.R. 16,436, 4 40 (1998).

Nextel Communications Inc. (‘Nextel’) for the PCS licenses now

held by NextWave Personal Communications, Inc.

(“NextWave’).” The FCC proposed to “grant a waiver of the C

and F block eligibility rules to allow a transfer of NextWave’s

a to Nextel pursuant to a court-approved reorganization

plan.”

In the Nextel term sheet, the FCC acted as a secured creditor

in preparing an alternative plan of reorganization that provided

for the discharge of its claim and the disposition of the licenses

in accordance with the provisions of the Bankruptcy Code. The

document refers to and treats the FCC as a “creditor.” It

provides for the classification and treatment of all claims,

including the FCC’s claim as a secured creditor. Part IV,

entitled “Secured Claims of the Federal Communications

Commission,” begins with the description: “This claim is held

by the FCC on account of promissory notes, the FCC’s rules and

regulations and the Licenses. The obligations under such notes

are secured by first liens om the respective licenses and the

proceeds thereof.” See RCR Magazine, Sept. 28, 1999 (“The

federal government was acting as a creditor — not a regulator —

when two officials . . . signed a letter indicating Nextel could

buy the spectrum awarded to NextWave”) (statement of Ari

Fitzgerald, legal advisor to FCC Chairman William Kennard).

The FCC similarly acted as a secured creditor in the

bankruptcy of Pocket Communications, Inc., the second highest

C-block bidder, which filed for bankruptcy in March 1997,

fifteen months before NextWave. The FCC intervened in the

Pocket bankruptcy as a creditor. In March 1998, the FCC

announced an agreement with Pocket creditors discounting

Pocket’s bid obligations by approximately sixty percent and

extending the pay-back period to twelve years. See FCC Public

Notice in DA 98-547 (released Mar. 23, 1998).

This pattern of behavior by the FCC created important

“investment-backed expectations” on the part of amici.’ These

expectations are entitled to protection even when (indeed,

especially when) the government regulator acts in a proprietary

capacity as a creditor or business partner. See United States v.

Winstar, 518 U.S. 839 (1996) (holding Government liable for

breaching regulatory contract with savings and loans).

In fact, government action should be scrutinized “more

closely” when “the Government has a direct pecuniary interest

in the outcome of the proceeding.” United States v. James

Daniel Good Real Property, 510 U.S. 43, 56 (1994) (citation

omitted). The FCC’s actions in this case bear the unmistakable

signs of gamesmanship. Only after the licenses had increased in

value did the FCC renounce its willingness to participate in the

bankruptcy proceeding and claim super-creditor status in order

to revoke the licenses and sell them to a higher bidder.

Accordingly, the County of Westchester appeared as an amicus

in the Second Circuit to accuse the FCC of seeking an

“economic windfall for itself.” See Brief of the County of

Westchester in No. 99-5063, at 8-9 (2d Cir. filed Mar. 6, 2000).

Whether or not the FCC had that intent here, a ruling i: its favor

would clearly have that effect, and its legal theory certainly

invites such opportunistic behavior by all government agencies,

any of which could decide to press claims in bankruptcy

whenever a license’s value had fallen, or instead to revoke

licenses in bankruptcy whenever the license’s value had risen.

The impact of such manipulation on commercial creditors — in

this case at the very moment they were to be paid in full — would

be devastating.

* See Eastern Enterprises v. Apfel, 524 U.S. 498, 518, 523, 527, 532 (1998)

(plurality opinion); id. at 539 (Kennedy, J., concurring in the judgment and

dissenting in part); id. at 556-58 (Breyer, J., joined by Stevens, Souter, and

Ginsburg, JJ., dissenting); Kaiser Aetna v. United States, 444 U.S. 164, 175

(1979). At minimum, the Code should be construed to avoid the serious

constitutional question that would be presented by an interpretation that

defeats these expectations. Ashwander v. Tennessee Valley Auth., 297 U.S.

288, 347 (1936) (Brandeis, J., concurring).

II. THE ASSERTION OF A “REGULATORY PURPOSE”

DOES NOT DISPLACE THE BANKRUPTCY CODE.

A. The FCC’s Purported Cancellation of the Licenses

Violates Section 525(a).

Amici were entitled to rely on the plain language of Section

525(a) of the Bankruptcy Code. By its terms, the statute

proscribes the FCC’s purported cancellation of NextWave’s

licenses. That provision commands that “a governmental unit

may not... revoke... a license, permit, charter, franchise, or

other similar grant . . . [or] condition such a grant . . . solely

because [the] debtor . . . has not paid a debt that is dischargeable

in the case under this title.” 11 U.S.C. § 525(a). Section 525(a)

is an important bankruptcy provision that protects not merely

debtor interests, but creditor interests as well. No rational

creditor would lend to or invest in any business requiring a

license if local, state, and federal agencies could claim super-

creditor status in the event of bankruptcy. Because licenses,

permits, and the like are frequently important elements of an

estate, Section 525(a) protects this value for the benefit of

creditors. The statute ensures equality among creditors by

preventing the Government from playing a “regulatory” trump

card.

The Government’s plea that “it’s not about the money” could

be made in any case where a government agency appears as a

creditor. That plea cannot render the Bankruptcy Code

inapplicable. Indeed, Section 525(a) addresses precisely the

context where government agencies are acting in a regulatory

capacity: in the administration of licenses, permits, charters,

franchises, and similar grants. Because of the need to encourage

investment, protect market expectations, and ensure orderly

reorganizations, Congress decided to create no catch-all

regulatory exception. As the Government acknowledges, Govt.

Br. 30, Section 525 was intended to build on Perez v. Campbell,

402 U.S. 637 (1971), which held that a regulatory purpose or

motive is irrelevant. Jd. at 651-52. The Government’s argument

would resuscitate the very cases that Perez explicitly overruled.

Id. at 652 (discussing Kesler v. Department of Public Safety, 369

U.S. 153 (1962), and Reitz v. Mealey, 314 U.S. 33 (1941)). Nor

does the application of Section 525(a) depend in any way on

whether the license is deemed to be “property of the estate.” Cf

Govt. Br. 46 n.15.

Section 525(a) has a well-developed meaning in the

regulatory context, on which the creditors were entitled to rely.

Case after case has established that government agencies are

prohibited from revoking licenses or similar grants in a wide

range of settings based on the past or present nonpayment of

dischargeable debts to government agencies as well as to third

parties. For example, public housing agencies may not deny

continued occupancy in public housing based upon the

nonpayment of dischargeable debts for past rent;"® public

educational institutions may not deny student transcripts based

upon the nonpayment of dischargeable tuition or student loan

debts;'' and agencies may not revoke or deny — based on the

nonpayment of dischargeable debts — rights to participate as

providers in the Medicare program," contractor’s licenses,’ real

1° Gibbs v. Hous. Auth. of City of New Haven, 76 B.R. 257 (D. Conn. 1983);

In re Szymecki, 87 B.R. 14, 16 (Bankr. W.D. Pa. 1988); Jn re Sudler, 71 B.R.

780, 786-87 (Bankr. E.D. Pa. 1987).

"' Lee v. Board of Higher Educ., | B.R. 781, 787 (S.D.N.Y. 1979); In re

Dembek, 64 B.R. 745, 750-51 (Bankr. N.D. Ohio 1986); Board of Trustees v.

Howren (In re Howren), 10 B.R. 303, 305-06 (Bankr. D. Kan. 1980); Jn re

Heath, 3 B.R. 351, 353-54 (Bankr. N.D. Ill. 1980).

"2 In re St. Mary Hosp., 89 B.R. 503, 510-12 (Bankr. E.D. Pa. 1988).

3 In re Walker, 64 B.R. 751 (Bankr. S.D. Ohio 1986); Jn re Lambillotte, 25

B.R. 392, 393-94 (Bankr. M.D. Fla. 1982); Jn re Fintel, 10 B.R. 50, 52

(Bankr. D. Or. 1981).

estate licenses," liquor licenses,"* licenses to practice law,"

insurance agent licenses,'’ or casino licenses."

If the FCC were treated as a super-creditor, government

agencies in every bankruptcy case would claim a similar

privilege, destroying the estate’s value, as in this case, or

otherwise claiming a right to special treatment not recognized by

the Bankruptcy Code. In virtually every case, a government

agency could claim an ostensibly “regulatory” motive for its

concern with timely payment, and move in and out of

bankruptcies as it saw fit, leaving the statute all but meaningless.

The Government contends that its cancellation of

NextWave’s licenses did not violate Section 525(a) because it

did not “discriminate” against the debtor. Govt. Br. 40-41. But,

as its text states, Section 525(a) prohibits and in that sense

defines as a forbidden form of “discrimination” against debtors

the revocation of a license based solely on the nonpayment of a

dischargeable debt. Section 525(a) extends to “discrimination or

other action based solely . . . on the . . . nonpayment of a debt

discharged in the bankruptcy case.” H. REP. NO. 95-595, at 366-

67 (1977), reprinted in 1978 U.S. CODE CONG. & ADMIN. NEWS

6322 (emphasis added). The Government’s argument that there

must in addition be some kind of animus against the bankrupt is

inapposite to the point of absurdity.

'* In re Walker, 927 F.2d 1138, 1141 (10th Cir. 1991); Jn re Harris, 85 B.R.

858 (Bankr. D. Colo. 1988).

'SIn re Tell, 38 B.R. 327, 330 (N.D. Ill. 1983).

'* In re Williams, 158 B.R. 493, 495-96 (Bankr. D. Id. 1993).

"” In re Jacobs, 149 B.R. 983 (Bankr. N.D. Okla. 1993).

* In re Elsinore Shore Assocs., 66 B.R. 723, 739 (Bankr. D.N.J. 1986).

1. The Government’s Effort to Create a

“Regulatory” Exception Should Be Rejected.

Section 525(a) carves out three exceptions to the general

rule.'? Notably, the Communications Act is not one of those

exceptions. And all three exceptions would have been

unnecessary if Congress had shared the FCC’s view that

“regulatory” debts are outside the scope of the Bankruptcy Code.

When Congress intends to create special bankruptcy exceptions

for particular government agencies or programs, it does so

explicitly. See, e.g., 11 U.S.C. § 362(b)(8) (Department of

Housing and Urban Development); § 362(b)(12), (13)

(Departments of Transportation and Commerce); § 362(b)(16)

(Department of Education); § 365(d)(5)-(d)(9), (f)(1) (landing

rights at airports).

There is no “regulatory” exception to Section 525(a), a fact

on which both pre-petition and post-petition creditors relied

when they lent money to NextWave. No such exception may be

manufactured by transplanting the regulatory power exception

from the automatic stay, which is a wholly different provision,

narrowly tailored to fit very different circumstances. 11 U.S.C.

§ 362(b)(4).” The FCC has already asked Congress to expand

'? The exceptions are the Perishable Agricultural Commodities Act, 1930,

7 U.S.C. § 499a-s; see Melvin Beene Produce v. Agricultural Mktg. Serv., 728

F.2d 347 (6th Cir. 1984); the Packers and Stockyard Act, 1921,7 U.S.C. §§

181-299; and section 1 of the Act entitled “An Act making appropriations for

the Department of Agriculture for the fiscal year ending June 30, 1944, and

for other purposes,” approved July 12, 1943. 7 U.S.C. § 204.

a “regulatory power” exception of Section 362(b)(4) is in any event

hd.» here, one the FCC’s cancellation of NextWave’s licenses

served to protect its pecuniary rather than its regulatory interest. In addition,

Section 362(b)(4) does not extend to the stay of acts to “create, perfect, or

enforce” liens against property of the estate under Sections 362(a)(4) and

(a5). The FCC took the position below that canceling the licenses and

seeking to collect on the debt was “tantamount . . . to foreclosing on the

Section 362(b)(4), and the legislature rejected the request. See

n.3, supra. Section 362(b)(4) confirms that the absence of a

“regulatory” exception to Section 525(a) is deliberate: when

Congress wished to create a “regulatory” power exception in the

Bankruptcy Code, it knew full well how to do so.

This Court has repeatedly protected creditors by rejecting

attempts by governmental agencies to exempt themselves from

the Code. In Pennsylvania Dep't of Public Welfare vy.

Davenport, 495 U.S. 552 (1990), for example, this Court held

that restitution obligations imposed as conditions of probation in

state criminal actions constitute dischargeable “debts.” This

Court rejected the argument — also made by the FCC here — that

the Government’s purpose determines whether its claim is a

“debt” within the meaning of the Bankruptcy Code: the Code

“makes no reference to purpose. The plain meaning of a ‘right

to payment’ is nothing more nor less than an enforceable

obligation, regardless of the objectives the State seeks to serve

collateral” (Pet. App. 41a) and that such pursuit of monetary indebtedness did

not fall within Section 362(b)(4). See Pet. App. 21a-22a, 174a-176a.

Although a license may not confer an ownership interest in the spectrum

itself, see Govt. Br. 46 n.15, it plainly confers a right to use the designated

frequencies for the specified purpose. This right is sufficient to trigger the

concept of “property of the estate” under Section 541(a) for the specialized

purposes of the Code. The FCC itself has treated the right as an “asset” of

NextWave’s estate. See Part I-B, supra; see also In re Kan. Pers.

Communications Servs., Ltd., 256 B.R. 807, 810 (D. Kan. 2000) (“The FCC

apparently acknowledges that a licensee holds a limited property interest in

a license”); In re Ridgely Communications, Inc., 139 B.R. 374, 377 (D. Md.

1992) (FCC has “acknowledged that a license confers certain private rights

upon the licensee and that these rights may be sold for profit to a private party,

subject to Commission approval”); Jn re Welch, 3 FCC Red. 6502, 6503, 6505

n.27 (1988) (acknowledging that licensee holds limited property interest in

license). The FCC treats licenses as assets of the debtor-in-possession,

transferred by operation of law under Second Thursday, 33 F.C.C.2d 703,

recon. denied, 34 F.C.C.2d 685 (1972), and it routinely approves such

transfers as pro forma transactions to protect “innocent creditors.” La Rose

v. FCC, 494 F.2d 1145, 1148 (D.C. Cir. 1974).

in imposing the obligation.” Jd. at 559.”" See also Cohen v. De

La Cruz, 523 U.S. 213, 218 (1998) (statutory treble damages for

violation of New Jersey Consumer Fraud Act qualified as

“debt”: “a ‘right to payment’ . . . ‘is nothing more nor less than

an enforceable obligation,” and “[t]hose definitions reflec(t]

Congress’ broad . . . view of the class of obligations that qualify

as a ‘claim’ giving rise to a ‘debt’”) (citations omitted); Ohio v.

Kovacs, 469 U.S. 274, 279 (1985) (debtor’s obligation to clean

up hazardous waste site under state environmental statute was

“debt” subject to discharge under the Code because “Congress

desired a broad definition of a ‘claim’ and knew how to limit the

application of a provision to contracts when it desired to do

so.”’).

The Government’s argument would have consequences it

could hardly welcome outside the circumstances of this single

case. If NextWave’s obligation to the FCC were not a “debt,”

then the Government would have talked itself out of any share

at all of the assets in Chapter 7 and Chapter 11 cases. See

Kovacs, 469 U.S. at 286 (O’Connor, J., concurring). To be sure,

canceling the licenses so that they revert to the FCC for re-

auction may suit the Commission on the facts of this case, where

the market rose after the bankruptcy petition was filed, but the

opposite will be true in instances of declining license values —

precisely when bankruptcies are most likely.

2. Section 525(a) Cannot Be Evaded By Describing

Payment As a “Condition” of the Licenses.

According to the FCC, the licenses were conditioned on the

requirement that the licensee make timely installment payments,

so that nonpayment resulted in automatic cancellation — despite

the filing of bankruptcy, Section 525(a), and the FCC’s earlier

2! Although Congress subsequently overruled the result in Davenport, it did

so by creating an exception to dischargeability and did not disturb this Court’s

“conclusions on the breadth of the definition of ‘claim’ under the Code.”

Johnson v. Home State Bank, 501 U.S. 78, 83 n.4 (1991).

representations. But any license could be said to be

“conditioned” on a payment obligation. If that were enough to

render Section 525(a) inapplicable, the statute would be a dead

letter. The Government’s argument is reminiscent of other

attempts to squirm out of the bankruptcy laws, such as the old

conditional sales device. Every installment sale could be recast

as a “condition” — if the buyer pays, the seller will give up

control of the item. This conception is so routine that the

Uniform Commercial Code explicitly notes that a secured

creditor’s efforts to recast its secured loan as a condition will be

completely unavailing. Rev’d UCC § 9-109(a)(1), comment 1.

The creditors were entitled to rely on the expectation that the

FCC could not circumvent the Code through such legerdemain.

Section 525(a) prohibits not merely revoking a license based on

the nonpayment of a dischargeable debt but also conditioning a

7 on a bankrupt’s payment of an otherwise dischargeable

™ In re General Dev. Corp., 163 B.R. 216 (S.D. Fla. 1994) (city could not

condition approval of platting land upon payment of dischargeable taxes); /n

re Williams, 158 B.R. 493 (Bankr. D. Id. 1993) (reinstatement application

could not be conditioned upon payment of dischargeable costs of disciplinary

proceeding); Jn re Couture, 225 B.R. 58 (D. Vt. 1998) (public housing tenant

may not be required to pay discharged unpaid rent as condition of lease

agreement); /n re Curry, 148 B.R. 966 (S.D. Fla. 1992) (same); Gibbs v.

Housing Auth. of City of New Haven, 76 B.R. 257 (D. Conn. 1983) (same); Jn

re Day, 208 B.R. 358 (Bankr. E.D. Pa. 1997) (same); Jn re Szymecki, 87 B.R.

14 (Bankr. W.D. Pa. 1988) (same); Jn re Geffken, 43 B.R. 697 (Bankr. N.D.

Ohio 1984) (conduct of business may not be conditioned on payment of

prepetition premiums due to state workers’ compensation fund); /n re Elsinore

Shore Assocs., 66 B.R. 723, 739 (Bankr. D.N.J. 1986) (gaming commission

could not require payment of prepetition fees “as a condition of relicensure”).

B. The FCC’s Purported Cancellation of the Licenses

Violates NextWave’s Statutory Right to Confirm a

Plan that Permits NextWave to Cure Any Default and

Retain the Licenses.

The court of appeals’ judgment would in any event have to

be affirmed on the alternative ground that the FCC’s purported

revocation of the licenses violated NextWave’s rights under

Section 1123, which grants a Chapter 11 debtor the right to cure

“any” default, “[njotwithstanding any otherwise applicable

nonbankruptcy law.” 11 U.S.C. § 1123(a)S)G). Section

1124(2)(a) similarly contemplates a plan which “(A) cures any

such default that occurred before or after the commencement of

the case under this title,” and this applies “(2) notwithstanding

any contractual provision or applicable law that entitles” a

creditor to demand accelerated payment.

Thus, even if there had been a default in the timely payment

of installments, the Code would provide the right to cure the

default and reinstate the obligation. Curing a default “tak[es]

care of the triggering event and return{s] to predefault

conditions. The consequences are thus nullified.” Jn re Taddeo,

685 F.2d 24, 26-27 (2d Cir. 1982). A debtor who cures a default

and assumes the debt on the original terms “abrogates” creditors’

rights arising from default. Rake v. Wade, 508 U.S. 464, 472 n.9

(1993). “[T]he Code provides a broad right to cure, regardless

of whether the agreement itself would permit cure.” 3 COLLIER

ON BANKRUPTCY 4 365.05[3][b]. For example, “Section 1 124(2)

permits the plan to reverse a contractual or legal acceleration.”

Id. 1124.03. A cure is adequate so long as it offers the creditor

“the substantial equivalent to its economic rights.” /d.

4 365.05[3][b]. The right to cure is an “important reorganization

technique” that furthers the Code’s goal of giving debtors a

“fresh start” and at the same time granting relief to creditors. S.

Rep. No. 989, 95" Cong., 2d Sess. 120 (1978); see also In re

Southeast Co., 868 F.2d 335, 336 (9" Cir. 1989) (holding that

plan properly denied creditor post-default-rate interest specified

in note, because cure “restores the relation of contracting parties

to pre-default status . . . . [T]he Code ‘authorizes a plan to nullify

all consequences of default, including avoidance of default

penalties such as higher interest.’”) (quoting /n re Entz-White

Lumber and Supply, Inc., 850 F.2d 1338, 1342 (9th Cir. 1988)).

No more dramatic example of the rehabilitative objectives of

the “cure” provisions of the Code could be imagined than this

case. NextWave’s plan provides for full payment to the FCC,

including installment payments, interest, late charges, and

penalties. The Commission’s interests are thus completely

protected. Conversely, if the statutory right to cure were not

honored and the FCC were permitted to cancel NextWave’s

licenses retroactively, the result would be economic catastrophe

for its commercial creditors.

It would be impermissible to create a “regulatory” exception

to the right to cure, based on the assertion that installment

payments to federal agencies were “untimely.” Debtors are

explicitly authorized to cure both pre-petition and post-petition

breaches, thus permitting a debtor to correct its earlier

difficulties through its plan of reorganization. 11 U.S.C. §§

1123(a)(2), 1124(2)(A) (unimpairment “cures any such default

that occurred before or after the commencement of the case”’).

Debtors may cure defaults in obligations to governmental as well

as commercial creditors. See, e.g., Brattleboro Hous. Auth. v.

Stoltz, 197 F.3d 625, 629-31 (2d Cir. 1999) (affirming debtor’s

right to cure default under lease with government agency); /n re

Kan. Pers. Communications Servs., Lid., 252 B.R. 179, 195

(Bankr. D. Kan.) (Chapter 11 debtor could cure default in

payment obligations to FCC), rev ‘d on other grounds, 256 B.R.

807 (D. Kan. 2000).”

® See also RTC v. Firstcorp., Inc. (In re Firstcorp., Inc.), 973 F.2d 243, 247

(4th Cir. 1992) (savings and loan holding company required to cure default to

regulator in capital maintenance obligation before it could reorganize under

Chapter | 1); Matter of Gordon, 217 B.R. 973, 975 (Bankr. S.D. Ga.1997)

(holding that defaults regarding tax claims could be cured and rejecting

Nothing in Sections 1123 and 1124 limits the right to cure to

“non-regulatory” actions by governmental creditors. Rather, the

plain language of Section 1123(a)(5)(G) extends to “any”

default, “[njotwithstanding any otherwise applicable

nonbankruptcy law” — words that this Court has recognized

should be given the broadest possible meaning. In Patterson v.

Shumate, 504 U.S. 753, 758-59 (1992), for example, this Court

held that the phrase “applicable nonbankruptcy law”

encompasses “any relevant nonbankruptcy law.” See also id. at

766 (Scalia, J., concurring) (suggesting that narrower readings

of this language depart so far from the text as to negate the ideal

of “a government of laws, not of men”); Cisneros v. Alpine

Ridge Group, 508 U.S. 10, 18 (1993) (“notwithstanding” signals

intent “to supersede all other laws,” and a “clearer statement is

difficult to imagine”); Long Island Railroad Co. v. Aberdeen &

Rockfish Rail Road Co., 439 U.S. 1, 5 (1978) (per curiam)

(“notwithstanding any other provision of law” includes federal

law); Ehrenberg v. Southern California Permanente Med. Group

(In re Moses), 167 F.3d 470, 475 (9th Cir. 1999) (“‘applicable

nonbankruptcy law’ clearly include[s] federal and state law’’).

Ill. THE FCC’S POSITION WOULD FRUSTRATE

THE PURPOSES OF THE COMMUNICATIONS

ACT.

Ironically, the FCC’s position would defeat rather than

promote the congressional policies embodied in Section 309(j).

For private financing will be chilled, if not eliminated altogether,

argument that debts to the Government are outside the right to cure: “Because

the plain meaning of this statute encompasses not only mortgage loans but

also obligations such as the one before me, | reject the United States’ first

contention. Where Congress’ intent is unmistakably evident from plain

language, no further inquiry need be made into the scope of the statute.”); /n

re Cox, 186 B.R. 744, 746 (Bankr. N.D. Fla. 1995) (although the “federal

government's need for the repayment of student loans [is] an important policy

objective,” default regarding student loans could be cured); /n re Benner, 156

B.R. 631 (Bankr. D. Minn. 1993) (student loan defaults cured).

if the FCC is allowed to cancel licenses retroactively. Creditors

such as amici will not supply needed funds to enable licensees

to bid for spectrum — let alone to build out their communications

networks — if the FCC can claim super-creditor status and cancel

critical licenses in the event of bankruptcy. The Commission’s

ability to grab valuable licenses whenever it decides to do so will

thus retard the asserted interest in the prompt and effective

utilization of the spectrum.

In fact, Congress would never have suggested installment

payments as an option if it had shared the FCC’s view of the law.

Section 309(j)(3)(B) instructs the FCC to promote the allocation

of licenses among “a wide variety of applicants, including small

businesses, rural telephone companies, and businesses owned by

minority groups and women.” These new entrants could not

succeed without extensive third-party financing. The

consideration of installment payments as an option reflects the

congressional recognition that bidders — having already raised

the maximum available in private capital markets — might need

even more credit from the FCC in the form of installment

payments spread out over time. The FCC, however, would

choke off such financing by placing its immediate institutional

interests above those of NextWave’s other creditors.

The Government contends that the FCC must be granted

super-creditor status in order to prevent what it describes as

“opportunities for speculation” in license auctions. Govt. Br. 24.

Even if it were valid, the Government’s policy argument would

provide no basis for departing from the clear language of the

Bankruptcy Code. See Rodriguez v. United States, 480 U.S. 522,

525-26 (1987). But there is no significant danger of speculation,

any risk of which has been fully addressed by Congress.

First, the economic reality is that bidders without well-

founded business plans and appreciable prospects for success in

the marketplace will not attract needed third-party investment.

Amici in this case provided funds to NextWave not as part of

some speculative venture but because NextWave had a viable

business plan. Amici included a wide range of large corporate

strategic investors, small businesses, investment funds, insurance

companies, and retirement funds, with their own financial and

fiduciary responsibilities to shareholders and investors. It is

absurd to suggest that NextWave, or any other bidder, could

organize such a diverse group of creditors and convince them to

invest in a $500 million “jump into bankruptcy” strategy.

NextWave was formed by a group of experienced

telecommunications executives, including the former president

of the wireless business at QVALCOMM, Inc. CAJA 1183. Its

board includes Dr. Allen Puckett (chairman and former CEO of

Hughes Aircraft and Electronics) and Judge William Webster.

NextWave did not “speculate” at the C-block auctions in May

and June 1996. Its bids were within the range of valuation of

comparable publicly traded wireless companies such as

Omnipoint Corporation. CAJA 1184. By early 1997, NextWave

had a staff of nearly 400 employees and 300 contractors in 22

offices; over $2 billion in financing commitments for

deployment of network equipment from major vendors; and

ninety percent of the microwave links needed for the initial

launch of service across the country. CAJA 1184-85. The

company had installed and operated network trial systems in

Washington, D.C., San Diego, Las Vegas, and San Antonio. In

short, NextWave was not a speculator. It was well underway to

putting its spectrum to immediate use. Its financial difficulties

are attributable to external factors, including a general market

downturn in the telecommunications sector which began in 1997

and which has caused some seventy-seven companies to file for

bankruptcy.”

* Information available at www. bankruptcydata.com. Some have identified

a direct role by the FCC in NextWave’s collapse. See H.R. Rep. No. 801,

105" Cong., 2d Sess. 14 (1998) (“the FCC’s handling of license-related issues

greatly contributed to the C-block debacle”). Whether or not the FCC was

responsible for NextWave’s financial difficulty, the salient point is that at the

very least it was caused by exogenous factors and was not the product of

The risk of speculation in license auctions is even more

fanciful in light of the heavy restrictions on license transfers, 47

U.S.C. § 310(d), and the substantial downpayment required

under the auction rules. Winning C-block bidders were required

to pay five percent of the bid within five days of the close of the

auction, and an additional five percent at the time of the license

grant. Pet. App. 53a-54a n.4. NextWave was required to make

a $504 million deposit when it first received the licenses, and the

FCC has taken the position that this deposit is non-refundable.

The FCC has ample means of ensuring that winning bidders

put the spectrum to prompt use. It could condition license grants

on specified build-out targets, periodic checks of financial

health, or other evidence that winning bidders are capable of

using their licenses in the public interest. Even if the FCC

decided to retain installment payments, it could require winning

bidders to obtain third-party guarantees for license fee

obligations.

The Government is wrong in claiming that such alternative

measures would run counter to Congress’ purposes. Govt. Br.

49-50. In fact, Section 309(j) expressly states that the FCC is

authorized to “specify[] eligibility and other characteristics of

[the] licenses and permits,” to “design[{] the methodologies for

use” of auctions, and to “include safeguards to protect the public

interest.” 47 U.S.C. § 309(j)(3). The Commission is directed to

include “performance requirements, such as appropriate

deadlines . . . to prevent stockpiling or warehousing of spectrum

by licensees,” and to impose “antitrafficking restrictions.” Jd. §

309(j(4)(B), (E). The FCC is also instructed to develop

standards for bidder and licensee qualifications. Jd. § 309(j)(5).

The statute plainly contemplates a system in which the FCC

experiments with various eligibility tests and standards in order

to ensure that Congress’ goals are met. See id. § 309(j)(3) (“The

Commission shall seek to design and test multiple alternative

“speculation” on NextWave’s part.

methodologies”). The FCC demonstrably errs in asserting that

Congress has authorized nothing beyond a bare-bones auction

scheme, stripped of any eligibility criteria or qualifying tests.

In addition, the Bankruptcy Code protects the Government,

as it protects all other creditors, from “heads-I-win, tails-you-

lose” speculation. For example, a bankruptcy petition that is not

filed in good faith may be dismissed by the court.* A debtor

which proceeds with its reorganization plan will not be allowed

to retain its licenses for free. If the debtor proposes to cure and

reinstate its payment obligation to the FCC pursuant to Sections

1123(a)(S)(G) and 1124(2)(a), it will be required to pay its debt

to the FCC in full — just as in any case where a default is cured.

If the debtor proposes instead to impair the FCC’s debt by

altering the terms and conditions of the obligation, the FCC,

unlike priority and general unsecured creditors, is entitled to the

full value of its allowed secured claim. 11 U.S.C. § 506.

If the FCC is oversecured — if the value of its claim is less

than the value of the collateral securing it (as the FCC asserts is

true in the instant case) — then the FCC is entitled under Section

1129(a)(7) to insist on payment in full, plus interest, fees and

costs. Although a debtor may stretch out the term of the debt, it

cannot reduce its pecuniary value.

If the FCC is undersecured (as in the case of declining license

values), it may choose to have its claim bifurcated into secured

and unsecured portions.”* Or, pursuant to Section 1111(b), it

may elect to forgo the bifurcation option and instead insist on

5 See 11 U.S.C. § 105(a); id. § 305(a); id. § 362(d); id. § 1112(b); 2

COLLIER ON BANKRUPTCY 4 301.17 (15" ed. 2001); see also 11 U.S.C.

§ 1129(a)(3) (Chapter 11 plan not confirmable if not “proposed in good

faith”).

2® See Associates Commercial Corp. v. Rash, 520 U.S. 953, 961 (1997). The

debtor is then obligated to pay the present value of the allowed secured claim

and to pay the unsecured portion pro rata with other unsecured creditors, but

with various added protections.

payment in full in nominal dollars — payments whose present

value must equal the present value of the collateral and whose

total value (although not its present value) must equal the

amount of the overall claim. See 7 COLLIER ON BANKRUPTCY 4

1111.03 (15" ed. 2001) (“{S]ection 1111(b) protects the

legitimate expectation of the secured lender that the bankruptcy

laws will be used only as a shield to protect debtors and not as

a sword to enrich debtors at the expense of secured creditors.”’).

In short, the FCC’s concerns about speculation are resolved

by the Bankruptcy Code. Nor is the danger of “speculation” that

the Government describes unique to FCC licenses. That danger

affects all secured creditors, not just government agencies. In

fact, the difficulty, which is known as the “Pine Gate” problem,

first arose not in the communications context but in the field of

real estate, a notoriously cyclical market.?” Accordingly, the

Code already contains a provision (Section 1111(b)) addressing

the risk of speculation in volatile markets. The FCC’s concern

(if there were one) should excite no special sympathy, because

it is simply the concern of every secured creditor when the

bankrupt debtor cannot satisfy all of its creditors completely.

The Code balances the competing rights of creditors, giving

exceptional — but not unlimited — protection to the secured

creditor. It is not for this Court to upset that balance by

elevating the FCC to super-creditor status, or to second-guess

Congress’ solution to the Pine Gate problem. As a result of the

FCC’s strategy, the creditors — instead of being paid in full

(along with the Commission) in January 2000 — have endured

more than thirty months of delay in litigation attempting to

enforce the plain meaning of Section 525(a).

CONCLUSION

The judgment of the court of appeals should be affirmed.

2” See, e.g., In re Pine Gate Assocs., Ltd., 2 B.C.D. 1478 (N.D. Ga. 1976);

3 B.C.D. 301 (N.D. Ga. 1977); 3 B.C.D. 813; 3 B.C.D. 838.

DAVID FRIEDMAN

KASOWITZ, BENSON, TORRES

& FRIEDMAN

1633 Broadway

New York, N.Y. 10019

(212) 506-1740