Petition for Writ of Certiorari — NextWave Personal Commmunications, Inc. v. Federal Communications Commission, 121 S. Ct. 298 (2000) (No. 99-1980)

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(D Bupreme Court, U.S.

ra aE: Be

99198 0 JuN9 2000

OFFICE OF THE CLERK

No.

IN THE

Supreme Court of the United States

NEXTWAVE PERSONAL COMMUNICATIONS INC.,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION,

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Second Circuit

PETITION FOR A WRIT OF CERTIORARI

Of Counsel: THEODORE B. OLSON

Counsel of Record

DEBORAH L. SCHRIER-RAPE DOUGLAS R. Cox

MICHELLE V. LARSON THOMAS G. HUNGAR

ANDREWS & KURTH LLP DAVID B. SALMONS

1717 Main Street GIBSON, DUNN & CRUTCHER LLP

Suite 3700 1050 Connecticut Avenue, N.W.

Dallas, TX 75201 Washington, D.C. 20036

(214) 659-4400 (202) 955-8500

G. ERIC BRUNSTAD, JR. © DONALD B. VERRILLI

BINGHAM DANA LLP JENNER & BLOCK

One State Street 601 Thirteenth Street, N.W.

Hartford, Connecticut 06103 Washington, D.C. 20005

(860) 240-2700 (202) 639-6000

Counsel for Petitioner

QUESTIONS PRESENTED

1. Whether the court of appeals erred in holding

that, notwithstanding the all-encompassing grant of

bankruptcy jurisdiction set forth in 28 U.S.C. § 1334, the

district and bankruptcy courts lack jurisdiction over

bankruptcy claims against a federal agency merely be-

cause, absent bankruptcy, review of the agency’s actions

may be subject to the exclusive jurisdiction of another

court.

2. Whether the court of appeals erred in holding

thai, even in legal proceedings to which a federal agency

is a party, courts must defer to the agency’s litigating

position expressing a post hoc interpretation of the

agency’s own contractual obligations.

PARTIES TO THE PROCEEDINGS

AND RULE 29.6 STATEMENT

All of the parties to the proceedings inthe court of

appeals are listed in the caption of this petition.

NextWave Personal Communications Inc. is a wholly-

owned subsidiary of NextWave Telecom Inc. Neither

entity is a publicly traded company.

ill

TABLE OF CONTENTS

Page

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PARTIES TO THE PROCEEDINGS AND RULE

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STATUTORY AND REGULATORY

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RAMMED GON BRIEE CAI oo ooncnccecsccccaceersessnsensecesacecsees l

Sie) Ue UII ooo scesesnecnsecssesscessnnnesnsesensnseos 4

B. The Bankruptcy Litigation .............0ccccsceseseeees 5

C. Proceedings In The Second Circuit ..........cceccsssese. 6

REASONS FOR GRANTING THE WRIT..............cc000000- 8

I. The Second Circuit’s Denial Of Bankruptcy-

Court Jurisdiction Cannot Be Reconciled With

Decisions Of Other Courts Of Appeals And

I aiadstaheih tata insedskiaensssinitnsctanicennesensacetnersanesvens 8

A. The Decision Below Conflicts With

Decisions Of Other Courts Of Appeals................ 8

B. The Decision Below Conflicts With This

I A a dase cavesceccasecesenesneenens 13

C. The Jurisdictional Question Is Important

And Recurring And Requires This Court’s

INN Netleatiis Fiks ch censsekchtasncicniotsasstuesicninisucoines 14

Il. The Second Circuit’s Rejection Of Next-

Wave’s Avoidance Action Contradicts The

Decisions Of Other Courts Of Appeals And

A. The Decision Below Conflicts With Cases

Rejecting Deference For An Agency’s

Interpretation Of Its Own Contracts................... 21

B. The Decision Below Conflicts With Cases

Rejecting Deference For An Agency’s

LAREN, FORTE 0. .cssssevsscrssseciensensietassalabbions 26

C. The Decision Below Contradicts The

FCC’s Own Regulations And Principles Of

Contract And Auction Law ..............ccccssccsessseeees 28 ig

CIE ee eee 30

BO OLLI LEG LLL STALE ILE IN I la

TABLE OF AUTHORITIES

CASES Page(s)

Adams Fruit Co. v. Barrett, 494 U.S. 638

SO SAS RTI EN CoN E kee ON aCe 24

Auer v. Robbins, 519 U.S. 452 (1997) ....ccccccsessesesssseeees 28

Barnhill v. Johnson, 503 U.S. 393 (1992) ....s.ccececsesesees 24

Board of Governors v. MCorp Financial,

BC, FUR ATS 32 (1G) viii iviiniiindis Hie sciitcneplstaies 13

Bowen v. Georgetown Univ. Hosp., 488 U.S.

PE POTD Senile nctthbnisinbihlimalaiineibn iia 26,28

Brock v. Morysville Body Works, Inc., 829 ?

Fe Se TPR: COR ceccweeeten nl, 2,10,11

Burgin v. Office of Personnel Management,

120 F.3d 494 (4th Cir. 1997)... ccceccscecseceseee 23,24

Celotex Corp. v. Edwards, 514 U.S. 300

CIE caccttenithaencse sosacnuauantulbhaqebntsouesolenvensneveniasonssa 13.

Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837

RID sins ch ddiiictanhsndiclosicaiaia teagan canes cae 21

Cisneros v. Alpine Ridge Group, 508 U.S.

CRUD einstellen dtsacinaiecs cack 13

Commodity Futures Trading Comm’n v.

Sohor, 478 U.S; B33 (19GB) o.ccssicccasececcccsossdccccecssss 14

Cooke v. United States, 91 U.S. 389 (1875) ........eccs-0e: 25

Grupo Mexicano de Desarrollo, S.A. v. Alli-

ance Bond Fund, Inc., 527 U.S. 308

EID eieerssteldld lela siilios aeiiadeeSeiipuis bianca abst 17

In re Atlantic Bus. & Community Dev.

Corp., 994 F.2d 1069 (3d Cir. 1993) o....ccceseseseees, 12°

In re Bulldog Trucking, Inc., 150 B.R. 912

SOP TEE tks nents e wet a 11

In re Central Ark. Broad. Co., 68 F.3d 213

(8th Cir. 1995) ..csssscccssess stiaehaniuiebiisicltihtiaaisaiiiduiinaalin 12

In re FCC, No. 99-5063, 2000 U.S. App.

LEXIS 11615 (2d Cir. May 25, 2000)................ 3,8,9

In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) ................ 11

In re Horizon Air, Inc., 156 B.R. 369

(INERIE. S. BOWE pisscidienervas s culpapansecane ebiduscdeaiaaeeie 11

In re Personal Communications Network,

Inc., No. 199-20207-575 (Bankr.

BRB BAe Fee tevsnsnsidcesnneeesnsasnnneetibonscesonsiinni 9

In re Pocket Communications, Inc., No. 97-

54105-SD (Bankr. D. Md. Nov. 12,

LDDD) sni:senininsdctonsiissincingentianspiainiadincsbeineiitandivait evseveseoes 6

In re Tak Communications, Inc., 985 F.2d

DIG. CTR CA, FR nc crieticeedennticieetiwscntictinstiinis 12

In re Town & Country Home Nursing Servs.,

Inc., 963 F.2d 1146 (9th Cir. 1992) ............cccsseesees 11

In re Transcon Lines, 147 B.R. 770 (Bankr.

CUD, Call. USES astcatrsciccicsisnennipstataiapiiiannieniniaites 11

In re United States, No. 98-11123 = Cir.

Oak. 7, Fa icccicniicnvcsmeiteaitaidiiaaianaaitainisaneitiiaann 12

In re University Med. Ctr., 973 F.2d 1065

(30 Cie, TIED sisviceecsctitincegiuiteniehllianniaininiiitissiindlenniins 1]

Irving Indep. Sch. Dist. v. Packard Proper-

ties, 970 F.2d 58 (Sth Cir. 1992).............cscccssscereenee 27

Jicarilla Apache Tribe v. FERC, 578 F.2d

ZOD (EE Ce, FT sitet cersssaictecserstginiincrinteminees 23

Langenkamp v. Culp, 498 U.S. 42 (1990) ........csesseeee 14

Katchen v. Landy, 382 U.S. 323 (1966) .........:scccesceeeee 14

Lynch v. United States, 292 U.S. 571 (1934) .......ceesee 25

Meadow Green-Wildcat Corp. v. Hathaway,

936 FE GOl CIE CAE. TOBE) seccssnrsescseessocscctereiess 21,22

Vii

National Fuel Gas Supply Corp. v. FERC,

BEL F.2d 1563. (0D.C., Civ, 1987 secsecesesscesescesnsseesessee 23

Pioneer Inv. Servs. Co. v. Brunswick Assoc.

Sees OOF ay PEC OP iidieee 17

Quality Tooling, Inc. v. United States, 47

Fe APE CON, My BOIS) ovecevecscsrccesecesseeciarencccas 2,10

Texas Gas Transmission Corp. v. Shell Oil

Cig BOS UB. 2GS ELGG) cicscsisccvesnisccdicsbesinec. seeeenee 24

Transohio Sav. Bank v. Director, Office of

Thrift Supervision, 967 F.2d 598 (D.C.

Stay SPUN iddbsnnscanseaberee te Ss 22,23

United Seniors Ass'n v. Shalala, 182 F.3d

PU CENA SIID vecitssctenisabsndedidcdiie ied. 28

United States v. Food, 2,998 Cases, 64 F.3d

Oe a 27

United States v. GWI PCS 1, Inc., 245 B.R.

Pr APRS WO: CIE cain ihnicaedctineratcs pee cies 6,11,12

United States v. Kimbell Foods, Inc., 440

ig ae ta ae ORE | 25

United States v. Whiting Pools, Inc., 462

OU TI aici 19

United States v. Winstar Corp., 518 U.S.

IN haces nS 24,25

Waste Control Specialists v. United States

Dep't of Energy, 141 F.3d 564 (Sth Cir.

ane eee 27

STATUTES AND REGULATIONS

Clean Air Act, 42 U.S.C. § 7607(b) scsscccesccsssssssssesccosee 15

Comprehensive Environmental Response,

Compensation, and Liability Act,

feces Hcg «ig Sat EPRICE yee one 15

Vill

Safe Water Drinking Act, 42 U.S.C. § 300j-

RELA SEN OES CSN AMET 15

2USC. II ih acs es 15

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Ep ke RMR arene anne Desens 18

BE UE BP oicecisinisissdthiticieesiiodiddiette 18

URL. 5 Rive ce ees 18

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et ee. 167a

ao: Cog fa ate 18,19,167a

op: Fas 5 SRR RD Naaman’: Cerrar Se 2,5,168a

TREE Foe Cs | ence ee emer 5,168a-69a

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i 19

Lf oh PRS NaMCRye ian rEiieeOnaNme Menener e 19

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WORE Si aii iia: suse 8,170

SOUO0 SOR ii a gs 8,170a

DOUG. © TAT iii sisiciciiiccsesiiccncs 2,170a

USC. § Me 2

Be has FPP seis enascivncessawiniesnonitantniiats 15

RUBE 0 1 ikk) etic ees 6,8,171a

Se ta ee 2,8,9,11,171a

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TUGC.4 NI es 10

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PN Bieri ce 6,9,173a

WUUEE: CO sk os i se 15,173a

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PREG. CRI oo rrseriiintetissteric icc 15,173a

TOURS 6 i es 15,173a-74a

a Ea aa mle sete 15,1742

re Se. 1S 15,174a

te eee 15,174a

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ERR ar cece 10

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gk EES Pee eRe I 6,201a

a CN oe 9,15,201a-02a

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i |” SER ene 29,206a

TOR less... 29,206a

Ore Cie 29,206a

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eee ie OT OIE I gcc vcs sentseerten se rcco cons. 4

H.R. REP. No. 111, 103d Cong., Ist Sess.

(103) reprinted i in 1993 U.S.C.C.AN.

SSSSSSHSSEHSSESEHSESESESESESESH ESSERE SSH ESSE EEHESHEEE EE EEE EEE

H.R. REP. No. 595, 95th Cong., 2d Sess. 445

(1977), reprinted in 1978 U.S.C.C.A.N.

FP TTET sesnncsnaiaestintipaannaasaneneannoniaumnennnmeindtinieinnines

| Se Recaeulaas ee Kite Kine

MISCELLANEOUS

Carolyn Hochstadter Dicker, PCS Licenses

and the “Specter” of Bankruptcy, 6

COMMLAW CONSPECTUS 59 (1998) .........0++:

In re Applications for Assignment of Broad-

band Personal Communications Servs.

Licenses, FCC 98-301, 1998 WL 889489

Wie, Bik PDs accisaniescccsthenantamniate tabaci

PETITION FOR A WRIT OF CERTIORARI

Petitioner NextWave Personal Communications Inc.

(“NextWave”) respectfully petitions for a writ of certio-

rari to review the judgment of the United States Court of

Appeals for the Second Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la-

39a) is reported at 200 F.3d 43. The opinion of the dis-

trict court (App., infra, 40a-56a) is reported at 241 B.R.

311. The opinions of the bankruptcy court (App., infra,

57a-161a) are reported at 235 B.R. 263, 235 B.R. 272,

235 B.R. 277, 235 B.R. 305, and 235 B.R. 314.

JURISDICTION

The judgment of the court of appeals was entered on

December 22, 1999. A timely petition for rehearing was

denied on February 10, 2000. App., infra, 162a. On

May 5, 2000, Justice Ginsburg extended the time for fil-

ing a petition for a writ of certiorari to and including

June 9, 2000. See Appl. No. 99A892. The jurisdiction

of this Court is invoked under 28 U.S.C. § 1254(1).

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

The pertinent provisions of the Bankruptcy Code,

the Hobbs Act, the Federal Communications Act

(“FCA”), and Federal Communications Commission

regulations are reproduced at App., infra, 167a-207a.

STATEMENT OF THE CASE

This case involves a court of appeals’ evisceration of

what may be the most comprehensive jurisdictional

grant in the United States Code: Congress’s vesting of

jurisdiction in the bankruptcy and district courts to hear

all proceedings arising under the Bankruptcy Code or

related to a bankruptcy case, “/n]otwithstanding any Act

of Congress that confers exclusive jurisdiction on a

court or courts other than the district courts.” 28

U.S.C. § 1334(b) (emphasis added); see also 28 U.S.C.

§ 157. The decision below holds that the bankruptcy

and district courts lack jurisdiction to apply the Bank-

ruptcy Code’s fraudulent conveyance provision, 11

U.S.C. § 544, to reduce NextWave’s $4.7 billion debt to

the Federal Communications Commission (“FCC”).

Notwithstanding the unambiguous and sweeping lan-

guage of Section 1334(b) and related jurisdictional pro-

visions, the court of appeals reasoned that “jurisdiction

over claims brought against the FCC in its regulatory

capacity lies exclusively in the federal courts of ap-

peals.” App., infra, 21a (emphasis added).

The court of appeals’ conclusion is flatly contra-

dicted by Section 1334(b) and related jurisdictional pro-

~~ visions. See 11 U.S.C. § 106(a)(2) (“The [bankruptcy]

court may hear and determine any issue arising with re-

spect to the application of [Section 544] to governmen-

tal units.”) (emphasis added); 28 U.S.C. § 157(b)(2)(H)

(granting bankruptcy court jurisdiction over “proceed-

ings to determine, avoid, or recover fraudulent convey-

ances”). The court of appeals’ nullification of these

bankruptcy jurisdictional statutes also conflicts with the

decisions of other courts of appeals. Unlike the Second

Circuit, these other courts have given full effect to the

Bankruptcy Code’s governing jurisdictional statutes,

and have recognized correctly that these statutes confer

bankruptcy jurisdiction even over proceedings that

would normally be subject to the exclusive jurisdiction

of another court. See, e.g., Quality Tooling, Inc. v.

United States, 47 F.3d 1569 (Fed. Cir. 1995); Brock v.

Morysville Body Works, Inc., 829 F.2d 383 (3d Cir.

1987).

The decision below effectively nullifies the jurisdic-

tional and substantive foundations underlying Con-

gress’s carefully crafted bankruptcy scheme. If the

bankruptcy and district courts lack jurisdiction to en-

ss etaiinitaiillaiaiaiaiaaiaiiaaiaiaiiiil

force the provisions of the Bankruptcy Code here, it fol-

lows that those courts lack jurisdiction over a wide array

of debtor-creditor proceedings involvin regulatory

agencies. Such a result invites a flood of litigation as

agencies of all types seek to take advantage of their

newfound immunity.

Indeed, the Second Circuit has already expanded its

jurisdictional ruling in a subsequent opinion, holding

that the bankruptcy courts have no jurisdiction to en-

force or apply other provisions of the Bankruptcy Code

against the FCC in NextWave’s bankruptcy proceed-

ings, including not only the automatic stay prescribed by

11 U.S.C. § 362, but also other provisions bearing on

NextWave’s efforts to reorganize. See In re FCC, No.

99-5063, 2000 U.S. App. LEXIS 11615 (2d Cir. May

25, 2000). Unless overturned by this Court, the decision

below wili engender widespread confusion regarding

the hitherto unquestioned scope of bankruptcy juris-

diction, and create a massive jurisdictional loophole for

federal agencies seeking to avoid bankruptcy-related

claims asserted against them by debtors in bankruptcy.

In addition to its jurisdictional ruling, the court of

appeals also determined that the question whether

NextWave’s obligation to the FCC could be reduced in

accordance with Section 544 should be resolved by ref-

erence to the FCC’s interpretation of its own contractual

commitments supplied after the fact and during litiga-

tion. App., infra, 27a-33a. The question of the disposi-

tion of NextWave’s obligation under Section 544 is

properly an issue of bankruptcy law, however, and the

court of appeals’ decision to defer to the FCC on this is-

sue conflicts irreconcilably with the decisions of other

courts of appeals establishing that, in resolving legal

disputes involving a federal agency, no deference is due

to the agency’s self-serving interpretations of its own

contractual obligations generated during the course of

the litigation. Accordingly, the Court should grant cer-

tiorari to review these important questions.

A. Factual Background

In May and July of 1996, NextWave was the high

bidder for 63 “C-Block” licenses auctioned by the FCC.

The licenses cover specified portions of the electromag-

netic spectrum suitable for personal communication ser-

vices (“PCS”). NextWave’s high bids totaled $4.7 bil-

lion. App., infra, 3a-Sa.

Although NexiWave was the high bidder for these

licenses, the licenses could not be granted until compie-

tion of the application and approval process. Pending

completion of that process, NextWave was required to

and did place deposits with the FCC equaling 10 percent

of its total bid amount (approximately $474 million).

Following the bidding, the FCC did not approve

NextWave’s license applications until January 1997,

and did not actually issue the licenses to NextWave until

February 1997. App., infra, Sa-6a.

When the licenses were finally issued, NextWave

executed promissory notes to the FCC for the balance of

the $4.7 billion purchase price. Under the terms of the

notes and applicable FCC regulations, NextWave was

obliged to pay the notes in installments over a ten-year

term, with interest only to be paid during the first six

years. See 47 C.F.R. §§ 1.2110(f), 24.711(b) (1996).

In the months between NextWave’s successful bid

for its licenses and the actual issuance cf the licenses in

February 1997, the FCC held auctions for nearly 1500

additional PCS licenses. App., infra, 71a. The prices

for these licenses were dramatically lower than the

prices for the C-Block licenses, averaging less than 25

percent of the C-Block bids. Jd. at 7a n.4.

Because of this precipitous drop in the market value

of the licenses, a significant number of C-Block license

holders were unable to obtain the financing necessary to

make their installment payments and build out their PCS

networks. During 1997, the second and third largest C-

Block license holders—Pocket Communications and

GWI PCS1-14, Inc.—filed for bankruptcy protection.

See Carolyn Hochstadter Dicker, PCS Licenses and the

“Specter” of Bankruptcy, 6 COMMLAW CONSPECTUS

59, 59 (1998).

On June 8, 1998, before its first installment payment

was due to the FCC, NextWave likewise commenced its

bankruptcy case under Chapter 11 of the Bankruptcy

Code. By that time, NextWave had expended not only

the $474 million already paid to the FCC, but also ap-

proximately $100 million on the build-out and pre-

activation phase of its network development pian. It

owed thousands of creditors in excess of $400 million.

B. The Bankruptcy Litigation

When it filed for Chapter 11 protection, NextWave

also filed an adversary proceeding against the FCC in

bankruptcy court under one of the fraudulent convey-

ance provisions of the Bankruptcy Code, 11 U.S.C.

§ 544. Section 544 allows a trustee (or debtor in pos-

session in a Chapter 11 case) to “avoid any transfer of

an interest of the debtor in property or any obligation

incurred by the debtor” to the extent that the debtor’s

creditors could have avoided the transfer or ob-

ligation under applicable nonbankruptcy law. 11 U.S.C.

§ 544(b)(1). NextWave’s complaint in the adversary

proceeding alleged that NextWave’s promissory-note

obligations were avoidable as fraudulent conveyances

_ because by the time the FCC actually issued the licenses

to NextWave in exchange for the notes, the licenses

were worth far less than the $4.74 billion that

pe ai had bid for them some seven to nine months

earlier.

! Prior to NextWave’s bankruptcy filing, another large

C-Block license holder, GWI, had successfully invoked the

fraudulent conveyance provisions of the Bankruptcy Code to

reduce the amount of its obligations to the FCC. On June 4,

1998, the bankruptcy court avoided more than $900 million

After a trial, the bankruptcy court entered judgment

for NextWave, reducing NextWave’s indebtedness un-

der the notes to $1.023 billion, the fair market value of

the licenses as of February 19, 1997—-when NextWave

“complied with its purchase price obligation by deliver-

ing the Notes” and incurred its obligation to pay for the

licenses in full. App., infra, 112a, 117a-134a. The FCC

appealed to the district court, which affirmed the bank-

ruptcy court’s judgment. Jd. at 40a-56a.

C. Proceedings In The Second Circuit

The Second Circuit reversed. App., infra, 1a-39a.

In spite of NextWave’s express reliance on the broad

grant of bankruptcy jurisdiction conferred by 28 U.S.C.

§ 1334 (see Pet. C.A. Br. 14-16), the court of appeals

held that bankruptcy courts lack jurisdiction to adjudi-

cate actions against the FCC arising under Section 544.

App., infra, 13a-24a. The court reasoned that Next-

Wave’s obligation to pay the full bid amount for the li-

censes was “regulatory” in nature, and thus subject to.

the exclusive jurisdiction of the courts of appeals au-

thorized to review FCC licensing decisions pursuant to

28 U.S.C. § 2342 and 47 U.S.C. § 402. App., infra, 21a.

The court of appeals also proceeded to address and

reverse the bankruptcy and district courts’ finding of a

constructive fraudulent conveyance. App., infra, 24a-

38a. The court concluded that NextWave’s purchase-

price obligations were incurred at the close of the auc-

tions, rather than when the licenses were subsequently

of GWI’s payment obligations to the FCC pursuant to 11

U.S.C. § 548. See United States v. GWI PCS 1, Inc., 245

B.R. 59, 61 (N.D. Tex. 1999), appeal pending, No. 99-11294

(Sth Cir.). A fraudulent conveyance action involving Pocket

Communications’ C-Block licenses is still pending as well.

See In re Pocket Communications, Inc., No. 97-34105-SD

(Bankr. D. Md. Nov. 12, 1999).

granted (and the promissory notes executed and deliv-

ered) many months later. Jd. at 25a.

The court’s determination that NextWave’s obliga-

tions were incurred at the close of the auctions was

“based on the FCC’s interpretation of its own regula-

tions, to which courts owe deference.” App., infra, 27a.

The court concluded that, even though the FCC had is-

sued its interpretation after the fact and during the

course of its litigation with NextWave, deference was

due to the FCC’s interpretation as long as the FCC was

acting at least “in part as a regulator” (i.e., not “as credi-

tor “ when it proffered the interpretation. Jd. at

31a-32a.

2During the pendency of its bankruptcy petition,

NextWave, as a result of its extensive financing efforts and

significant improvements in PCS spectrum market condi-

tions, has raised sufficient capital to pay in full for its li-

censes, emerge from bankruptcy, and proceed expeditiously

to offer its PCS network to consumers. NextWave has thus

offered to pay the FCC in full for its licenses and to satisfy

the claims of all other creditors. Implementation of this pro-

posed plan would fulfill Congress’s goals in enacting the

Bankruptcy Code and in mandating that portions of the PCS

spectrum be auctioned to small and entrepreneurial busi-

nesses. Notwithstanding NextWave’s ability and willingness

to satisfy in full its purchase-price obligations, however, on

January 12, 2000, the FCC rejected that offer, and asserted

jor the first time that NextWave’s licenses “automatically

canceled” at an unspecified date more than a year earlier.

Moreover, the FCC scheduled a public auction of those and

other licenses for a future date (currently November 29,

2000). NextWave immediately sought relief in the bank-

ruptcy court, which held that the FCC’s attempted cancella-

tion of the licenses was void on several independent grounds.

On May 25, 2000, the Second Circuit granted the FCC’s

mandamus petition, holding that the bankruptcy court lacked

jurisdiction to determine whether the FCC’s attempted can-

cellation violated the Bankruptcy Code because “{e]xclusive

jurisdiction to review the FCC’s regulatory action lies in the

REASONS FOR GRANTING THE WRIT

I. The Second Circuit’s Denial Of Bankruptcy-

_ Court Jurisdiction Cannot Be Reconciled With

Decisions Of Other Courts Of Appeals And

This Court

A. The Decision Below Conflicts With Deci-

sions Of Other Courts Of Appeals

The Second Circuit’s decision below conflicts with

decisions of the Third, Fifth, Ninth, and Federal Cir-

_ cuits. Unlike the Second Circuit, these other courts of

appeals have given full effect to the broad grant of

bankruptcy jurisdiction set forth in 28 U.S.C. § 1334,

and have recognized correctly that Section 1334(b) con-

fers bankruptcy jurisdiction even over proceedings that

might otherwise be subject to the exclusive jurisdiction

of another court. This Court’s review is essential to re-

solve this stark conflict among the circuits.

By the express terms of 28 U.S.C. § 1334, Congress

granted jurisdiction over all bankruptcy-related proceed-

ings to the district court (and, by reference, to the bank-

ruptcy court, 28 U.S.C. § 157(a) & (b)), and expressly

overrode all exclusive-jurisdiction provisions of other

statutes:

Notwithstanding any Act of Congress that confers

exclusive jurisdiction on a court or courts other than

the district courts, the district courts shall have

original but not exclusive jurisdiction of all civil

proceedings arising under title 11, or arising in or re-

lated to cases under title 11.

28 U.S.C. § 1334(b) (emphases added); see also H.R.

REP. NO. 595, 95th Cong., 2d Sess. 445 (1977), re-

printed in 1978 U.S.C.C.A.N. 5963, 6400 (Section

1334(b) “is the broadest grant of jurisdiction to dispose

courts of appeals.” Jn re FCC, No. 99-5063, 2000 U.S. App.

LEXIS 11615, at *37-*39 (2d Cir. May 25, 2000).

nn nnnnerennNnnyy Tn

of proceedings that arise in bankruptcy cases or under

the bankruptcy code”).

Despite Congress’s unambiguous mandate that bank-

ruptcy jurisdiction under Section 1334(b) should over-

ride other exclusive-jurisdiction statutes, the court be-

low held that the bankruptcy court lacked jurisdiction

over NextWave’s fraudulent conveyance action, brought

under Section 544 of the Bankruptcy Code, “[bJecause

jurisdiction over claims brought against the FCC in its

regulatory capacity lies exclusively in the federal courts

of appeals.” App., infra, 21a. In rejecting bankruptcy

jurisdiction here, the Second Circuit relied on the very

type of exclusive-jurisdiction statutes that Section

1334(b)’s “notwithstanding” provision expressly

trumps. See id., citing 28 U.S.C. § 2342 (granting ex-

clusive jurisdiction to courts of appeals to review final

orders of the FCC), and 47 U.S.C. § 402(b) (granting

exclusive jurisdiction to the District of Columbia Circuit

to review certain FCC licensing orders).3

NextWave’s licenses. Without addressing the merits of the

FCC’s attempted cancellation, the Second Circuit reiterated

that “[t]he [exclusive] jurisdictional statutes leave no open-

ing for the sort of jurisdiction over the FCC that the bank-

Tuptcy court [sought] to exercise.” In re FCC, 2000 US.

App. LEXIS 11615, at *38. Thus, the Second Circuit obvi-

ously intends to adhere to its indefensibly restrictive view of

bankruptcy court jurisdiction. Moreover, the impact of the

decision below is already being felt in other pending bank-

ruptcy cases. In Jn re Personal Communications Network,

Inc., No. 199-20207-575 (Bankr. E.D.N.Y. June 7, 2000),

the court relied on the decision below in holding that it

lacked jurisdiction over the debtor’s FCC licenses because

the FCC had purported to cancel them.

The decision below conflicts directly with *xe deci-

sions of those courts of appeals that have considered

whether Section 1334 confers bankruptcy-court jurisdic-

tion over bankruptcy-related proceedings despite the ex-

istence of statutes purporting to grant exclusive jurisdic-

tion to a different court. The Federal Circuit, for exam-

ple, in Quality Tooling, Inc. v. United States, 47 F.3d

1569 (Fed. Cir. 1995), held that the district court in

bankruptcy has concurrent jurisdiction over government

contract disputes notwithstanding the provisions of the

Tucker Act, which “purports to make the Court of Fed-

eral Claims the exclusive trial court for hearing” such

claims. Jd. at 1572-73 (citing 28 U.S.C. §§ 1346(a)(2),

1491(a)(2)). The court held that Section 1334(b) clearly

overrides any competing exclusive-jurisdiction statute:

Congress ... anticipated that there would be claims

involving a bankrupt’s estate that, by statute, were as-

signed exclusively to some court other than a district

court. Congress, wishing to give the district court sit-

ting in bankruptcy plenary authority over the bank-

rupt’s estate and all claims by or against it, expressly

provided that the district court would have concurrent

jurisdiction over all claims, even those which by stat-

ute were within the exclusive jurisdiction of other

federal courts.

Id. at 1573 (emphases added). The Federal Circuit thus

concluded that “[t]here can be little doubt that, by stat-

ute, both the District Court, sitting in bankruptcy, and

the Court of Federal Claims are empowered with subject

matter jurisdiction over this . . . dispute.” Jd.

The Third Circuit has similarly held that Section

1334(b) provides bankruptcy and district courts with ju-

risdiction despite the existence of a conflicting statutory

grant of exclusive jurisdiction te another court. See

Brock v. Morysville Body Works, Inc., 829 F.2d 383,

385-86 (3d Cir. 1987). Although 29 U.S.C. § 660(b)

purported to grant to the courts of appeals “original and

exclusive jurisdiction” to review the federal agency or-

der at issue in that case, the Third Circuit explained that

“section 1334(b) alters the effect of the jurisdictional

grant of section 660(b) by expressly rendering it non-

exclusive.” Jd. at 385. Thus, contrary to the Second

Circuit’s approach, the Brock court held that, notwith-

standing any other statutory grant of exclusive jurisdic-

tion to a different court, “the effect of 28 U.S.C.

§ 1334(b) is to grant the district court Overseeing the

bankruptcy concurrent original jurisdiction.” Id.; see

also In re University Med. Ctr., 973 F.2d 1065, 1072,

1073-74 (3d Cir. 1992),

The Ninth Circuit has reached this same conclusion,

declaring that Section 1334(b) demonstrates Congress’s

clear intent “‘to bring all bankruptcy-related litigation

within the umbrella of the district court, . . . irrespective

of congressional statements to the contrary in the con-

text of other specialized litigation.” In re Town &

Country Home Nursing Servs., Inc., 963 F.2d 1146,

1155 (9th Cir. 1992) (citation omitted: emphasis added).

Indeed, the Ninth Circuit has recently reaffirmed that

“the purpose of [Section 1334(b)] is . . . to allow district

courts in which the bankruptcy case is filed to adjudi-

cate b tcy-related actions in which jurisdiction has

been vested in other courts.” In re Gruntz, 202 F.3d

1074, 1083 (9th Cir. 2000) (emphasis added).4

In a matter strikingly similar to the instant case, the

Fifth Circuit has allowed a bankruptcy court to exercise

jurisdiction over the FCC. In United States v. GWI

PCS I, Inc., 245 B.R. 59 (N.D. Tex. 1999), as here, the

4 Lower federal courts have reached the same conclu-

sion. See, e.g., In re Horizon Air, Inc., 156 B.R. 369, 377-78

(N.D.N.Y. 1993) (district court has jurisdiction over chal-

lenge to FAA’s order revoking operating certificate); Jn re

Bulldog Trucking, Inc., 150 B.R. 912, 915-16 (W.D.N.C.

1992) (Section 1334(b) grants concurrent jurisdiction despite

Section 2342); In re Transcon Lines, 147 B.R. 770, 774

(Bankr. C.D. Cal. 1992) (same).

district court affirmed the bankruptcy court’s ruling in

favor of C-Block license holders that brought a fraudu-

lent conveyance action against the FCC, concluding that

the license holders were permitted to retain the licenses,

while avoiding more than $900 million of the original

$1.06 billion bid as a fraudulent conveyance. Jd. at 60.

In direct contrast to the Second Circuit’s rejection of

bankruptcy-court jurisdiction, the Fifth Circuit declined

even to grant the FCC a stay of plan confirmation pend-

ing disposition of the FCC’s appeals. In re United

States, vO, 98-11123 (Sth Cir. Oct. 7, 1998); see 245

B.R. at 61.

Thus, the decision below is in stark conflict with de-

cisions of the Third, Fifth, Ninth, and Federal Circuits

on whether otherwise applicable exclusive-jurisdiction

provisions oust bankruptcy and district courts of their

Section 1334 jurisdiction. This Court’s review is neces-

sary to resolve the conflict.6

5 The FCC’s subsequent appeals in GWI were rejected by

the district court. 245 B.R. at 64. An appeal of the district

court’s decision is currently pending in the Fifth Circuit.

FCC vy. GWI PCS 1, Inc., No. 99-11294 (Sth Cir. oral arg.

Feb. 3, 2000).

6 The judgment below is also inconsistent with 28 U.S.C.

§ 1334(e), which provides that the district court has “exclu-

sive jurisdiction of all of the . . . property of the estate,” and

with decisions of other courts of appeals holding or assuming

that FCC licenses are property of the estate for bankruptcy

purposes. See In re Central Ark. Broad. Co., 68 F.3d 213,

214-15 (8th Cir. 1995); Jn re Tak Communications, Inc., 985

F.2d 916, 918 (7th Cir. 1993); Jn re Atlantic Bus. & Commu-

nity Dev. Corp., 994 F.2d 1069, 1075 (3d Cir. 1993). The

court below did not expressly address whether FCC licenses

are property of the estate for bankruptcy purposes, but the

court’s rejecuon of bankruptcy jurisdiction over FCC li-

censes is irreconcilable with those authorities.

B. The Decision Below Conflicts With This

Court’s Precedents

The decision below is also inconsistent with this

Court’s precedents. In Board of Governors v. MCorp

Financial, Inc., 502 U.S. 32 (1991), for example, this

Court unequivocally declared that Section 1334(b), by

its plain terms, “authorizes a district court to exercise

concurrent jurisdiction over certain bankruptcy-related

civil proceedings that would otherwise be subject to the

exclusive jurisdiction of another court.” 502 U.S. at 41

(emphasis added). Moreover, as this Court has also ob-

served, “Congress intended to grant comprehensive ju-

risdiction to the bankruptcy courts so that they might

deal efficiently and expeditiously with all matters con-

nected with the bankruptcy estate.” Celotex Corp. v.

Edwards, 514 U.S. 300, 308 (1995) (citation omitted;

emphases added). Indeed, as this Court noted in Ce-

lotex, the special importance of Chapter 11 proceedings

reinforces the jurisdictional analysis, because bank-

tuptcy jurisdiction in such cases “may extend more

broadly” than in other contexts, and must encompass

any proceeding that could affect the debtor’s ability to

formulate a feasible plan of reorganization. See Ce-

lotex, 514 U.S. at 310. By eviscerating the authority of

bankruptcy courts to adjudicate a large category of

bankruptcy claims relating to the rights and obligations

of debtors, the court of appeals violated the principles

enumerated by this Court in Celotex and MCorp.

The decision below is also irreconcilable with this

Court’s case law governing the interpretation of federal

Statutes. This Court has held that “the use of ... a

‘notwithstanding’ clause [such as that included in Sec-

tion 1334(b)] clearly signals the drafter’s intention that

the provisions of the ‘notwithstanding’ section override

conflicting provisions of any other section.” Cisneros v.

Alpine Ridge Group, 508 U.S. 10, 18 (1993) (emphasis

added). The Second Circuit’s ruling, on the other

hand—that despite the plain meaning of Section

1334(b)’s “notwithstanding” clause, the exclusive-

jurisdiction provisions of the FCA and the Hobbs Act

preclude bankruptcy-court review—is flatly inconsistent

with this Court’s construction of such clauses.’

C. The Jurisdictional Question Is Important

And Recurring And Requires This Court’s

Review

By permitting otherwise applicable exclusive-

jurisdiction provisions to trump the bankruptcy court’s

Section 1334 jurisdiction, the decision below effectively

nullifies Congress’s express command and creates an

amorphous and infinitely elastic “regulatory” exception

to bankruptcy-court jurisdiction. Under the Second Cir-

cuit’s approach, every federal agency whose decisions

are reviewable pursuant to an exclusive-jurisdiction

provision could characterize a bankruptcy-related pro-

ceeding as interfering with its “regulatory” functions,

thereby obtaining immunity from bankruptcy-court ju-

risdiction. The result would be regular evasions of Con-

gress’s clear mandate that district and bankruptcy courts

hearing bankruptcy cases must possess authority to

address all aspects of the debtor’s rights and respon-

sibilities in order to ensure a complete and efficient

resolution of the bankruptcy.

Congress has enacted numerous provisions that pur-

port to vest exclusive jurisdiction in courts other than

7The decision below also conflicts with the well-

established principle that a claimant (including a governmen-

tal entity) that files a claim in a bankruptcy case submits to

the jurisdiction of the bankruptcy court, and likewise to

plication of the bankruptcy laws. See Langenkamp v. Culp,

498 U.S. 42, 44-45 (1990); Katchen v. Landy, 382 U.S. 323,

334-36 (1966); see also Commodity Futures Trading

Comm'n v. Schor, 478 U.S. 833, 841-44, 852 (1986). It is

undisputed that the FCC filed a proof of claim against

NextWave in this bankruptcy case asserting a liability in ex-

cess of $4.7 billion.

the district courts. For example, the Second Circuit

based its decision in part on an exclusive-jurisdiction

provision of the Hobbs Act, 28 U.S.C. § 2342(1), which

grants exclusive jurisdiction over FCC final orders to

the courts of appeals. That same act, however, also

grants to the courts of appeals exclusive jurisdiction

over final orders, rules, regulations, or actions of six

other departments or agencies. See 28 U.S.C..

§$§ 2342(2) (Department of Agriculture), 2342(3)(A)

(Department of Transportation), 2342(3)(B) (Federal

Maritime Commission), 2342(4) (Atomic Energy

Commission); 2342(5) (Surface Transportation Board),

2342(6) (Department of Housing and Urban Develop-

ment), and 2342(7) (Department of Transportation).

The Second Circuit also relied in part on the exclu-

sive jurisdiction of the D.C. Circuit to review FCC li-

censing orders under the FCA, 47 U.S.C. § 402(b). The

D.C. Circuit has been granted exclusive jurisdiction to

review decisions of several other administrative agen-

cies as well, including the Federal Election Commission

(see 2 U.S.C. § 437g(a)(8)(A)) and the Environmental

Protection Agency (see, e.g., Safe Water Drinking Acct,

42 U.S.C. § 300j-7(a); Clean Air Act, 42 U.S.C.

§ 7607(b); Comprehensive Environmental Response,

Compensation, and Liability Act, 42 U.S.C. § 9613(a)).

In addition, several other courts, including the Court of

Federal Claims, the Federal Circuit, the Court of Inter-

national Trade, and the Court of Veterans Appeals, also

possess exclusive jurisdiction over specific types of

claims. See, e.g., 28 U.S.C. § 1491 (granting the Court

of Federal Claims exclusive jurisdiction over certain

claims against government agencies); 28 U.S.C.

§ 1295(a)(6)-(14) (granting the Federal Circuit exclu-

sive jurisdiction to review certain determinations by the

Secretary of Commerce, the Merit Systems Protection

Board, agency boards of contract appeals, and various

other matters); 28 U.S.C. § 1581 (providing the Court of

International Trade with exclusive jurisdiction over the

review of certain administrative decisions involving tar-

iffs); 38 U.S.C. § 7252 (providing the Court of Appeals

for Veterans Claims with exclusive jurisdiction to

review decisions by the Board of Veterans’ Appeals);

49 U.S.C. § 46110(a) (granting the courts of appeals ex-

clusive jurisdiction over final action by the Federal

Aviation Administration).

There is thus no principle that would limit the impact

of the Second Circuit’s decision to the FCC. Rather,

under the rule adopted below, whenever an agency

whose decisions are reviewable under an exclusive-

jurisdiction provision characterizes a bankruptcy claim

or proceeding as relating to its “regulatory” function, the

agency would be immunized from bankruptcy-court ju-

risdiction. As a result, resolution of the estate’s claims

would be fractured and dispersed over multiple courts,

despite Congress’s clear intent that the bankruptcy

courts have centralized control over the resolution of

debtors’ estates, and that the Bankruptcy Code apply to

agencies when dealing with debtors in bankruptcy.

Such a result would frustrate the paramount purposes of

the Bankruptcy Code and would dramatically alter the

careful and reticulated balance that Congress has struck

between creditors’ and debtors’ rights in the Code. The

consequences would be seriously detrimental, not only

for debtors attempting reorganization, but also for

countless creditors, investors, employees, and other in-

nocent third parties who depend upon the equitable and

efficient resolution of bankruptcies.

Congress, in fact, recognized the overarching impor-

tance of vesting bankruptcy courts with the broadest

possible jurisdiction, and the Second Circuit’s wholesale

rejection of Congress’s policy determination presents a

further compelling justification for this Court’s review.

As the House Report on Section 1334 explained, that

section’s “comprehensive” grant of bankruptcy-court

jurisdiction was “a significant change from current

law,” and was necessary to “greatly diminish the basis

for litigation of jurisdictional issues which consumes so

much time, money, and energy of the bankruptcy sys-

_ tem and of those involved in the administration of debt-

ors’ affairs.” H.R. REP. No. 595, 95th Cong., 2d Sess.

445 (1977), reprinted in 1978 U.S.C.C.AN. 5963,

6007, 6400. The Senate Report further explained,

“[t]his broad grant of jurisdiction will enable the bank.

Tuptcy courts . . . to dispose of controversies that arise in

bankruptcy cases or under the bankruptcy code .. . [in-

cluding] [a]ctions that formerly had to be tried in [other

courts] at great cost and delay to the estate.” S. REP.

NO. 989, 95th Cong., 2d Sess. 153 (1978), reprinted in

1978 U.S.C.C.A.N. 5787, 5939.

This Court, moreover, has recognized that bank-

Tuptcy-court jurisdiction, particularly in Chapter 11

cases, serves the important purposes of “provid[ing] for

reorganization with the aim of rehabilitating the debtor

and avoiding forfeitures by creditors.” Pioneer Inv.

Servs. Co. v. Brunswick Assoc. Lid., 507 U.S. 380, 389

(1993) (citation omitted). As this Court has also ex-

plained, however, those important purposes can be

achieved only by honoring the Bankruptcy Code’s care-

fully calibrated network of compromises, and thus

courts must be especially careful not to upset the bal-

ance struck by Congress: “[B]y adding through judicial

fiat, a new and powerful weapon to the creditor’s arse-

nal, the new rule could radically alter the balance be-

tween debtor’s and creditor’s rights which has been de-

veloped over centuries through many laws—including

those relating to bankruptcy, fraudulent conveyances,

and preferences.” Grupo Mexicano de Desarrollo, S.A.

v. Alliance Bond Fund, Inc., 527 U.S. 308, 331 (1999).

The decision below, by creating a broad exception to

bankruptcy courts’ Section 1334 jurisdiction, achieves

precisely that forbidden result.

The Second Circuit’s holding that the FCC’s pur-

ported “regulatory” functions are completely outside the

purview of bankruptcy, for example, not only frustrates

the purposes of Section 1334(b), but also contradicts

several other provisions of the Bankruptcy Code that re-

veal Congress’s intent that regulatory agencies be sub-

ject to the bankru ptcy process rather than be exempted

from it ab initio. Of particular relevance here, Con-

gress plainly contemplated that bankruptcy courts would

have jurisdiction to review regulatory actions pertaining

to licensing decisions. Section 525 of the Code ex-

pressly provides that “a governmental unit may not

deny, revoke, suspend, or refuse to renew a license ...

or other similar grant to ... a person that is or has been

a debtor . . . solely because such bankrupt or debtor is or

has been a debtor . . . or has not paid a debt that is dis-

chargeable” in bankruptcy. 11 U.S.C. § 525(a) (empha-

sis added). Accordingly, Congress must have intended

that governmental units that regulate licenses, including

the FCC, be subject to the Bankruptcy Code.

The Code’s general applicability to regulatory agen-

cies is also demonstrated by the presence of specific ex-

ceptions for regulatory agencies—including exceptions

to the automatic stay of 11 U.S.C. § 362, a bedrock pro-

vision of the Code. Congress has expressly exempted

certain limited exercises of “police and regulatory

wer from some aspects of the automatic stay, see 11

U.S.C. § 362(b)(4), and has created other, more specific

exceptions for certain acts by individual agencies. See,

e.g., id. § 362(b)(8) (Secretary of Housing and Urban

Development); id. § 362(b)(12) (Secretary of Transpor-

tation); id. § 362(b)(13) (Secretary of Commerce); id.

§ 362(b)(16) (Secretary of Education); see also id.

8 E.g., 11 U.S.C. § 106(a)(2), (a)(3), (b) (waiving U.S.

sovereign immunity, granting power to “hear and determine

any issue arising with respect to the application of [Section

544 and other Bankruptcy Code Provisions} to governmental

units,” and granting power to issue “an order, process, or

judgment” against governmental units); 11 U.S. C. § 101(27)

(defining “governmental unit” to include any “department,

agency, or instrumentality of the United States”).

§ 525(a) (excepting some acts of the Department of Ag-

riculture from the license-cancellation ban); id. §§ 555,

556, 761 (creating different bankruptcy rules for liqui-

dating commodity brokers, securities contracts, com-

modities contracts, and forward contracts). No such ex-

ceptions exist for the FCC. Nor, of course, does any

bankruptcy provision broadly except any agency from

the Bankruptcy Code, or from bankruptcy courts’ power

to apply the Code.

As the clear and carefully limited exceptions con-

tained in the Bankruptcy Code demonstrate, if Congress

had intended to alter the fundamental purpose and bal-

ance of the Code by creating a broad exception to the ju-

risdictional provisions for certain federal agencies act-

ing in their “regulatory capacity” (App., infra, 21a), it

would have done so explicitly. See United States v.

Whiting Pools, Inc., 462 U.S. 198, 209 (1983) (rejecting

IRS’s claim to be exempt from the reach of the Bank.

Tuptcy Code, because “{nJothing in the Bankruptcy

Code or its legislative history indicates that Congress in-

tended a special exception for the tax collector”). The

" Sweeping loophole created by the court below thwarts

Congress’s obvious desire to vest bankruptcy courts

with the widest possible jurisdiction over all bank-

ruptcy-related matters, and dramatically affects not only

—— in gp ear but also the many third parties

whose interests the bankruptcy process is supposed to

protect and harmonize, including me investors,

and loyees. The proper functioning of the capital

smnshae deme on the ability of private selene to

rely on the protections built into the bankruptcy system.

The decision below, by permitting exclusive-juris-

diction statutes to trump Section 1334(b)’s grant of

bankruptcy jurisdiction, violates the congressional plan,

gives federal agencies an overwhelming and unfair ad-

vantage over other creditors in bankruptcy proceedings,

and threatens to undermine the basis on which the Capi-

tal markets make billions of dollars available to regu-

lated companies. This Court’s review is essential to

prevent the decision below from upsetting the careful

balance struck by Congress in the Bankruptcy Code.

II. The Second Circuit’s Rejection Of NextWave’s

Avoidance Action Contradicts The Decisions Of

Other Courts Of Appeals And This Court

The Second Circuit reversed the bankruptcy court’s

holding that NextWave’s promissory-note obligations

were avoidable as a fraudulent conveyance. Given the

bankruptcy court’s undisputed finding that the licenses

were worth only $1.023 billion as of February 1997, the

dispositive issue for purposes of the fraudulent convey-

ance claim was the date on which NextWave incurred

its obligation to pay the purchase price for the licenses.

See App., infra, 26a. Addressing this issue, the Second

Circuit concluded that NextWave became obligated to

pay the full purchase price for the licenses at the close

of the auctions, rather than when the licenses were

granted many months later. Jd. at 34a. But rather than

resolve this dispositive issue as a matter of bankruptcy

law, the court expressly predicated its ruling on defer-

ence to the FCC’s litigation-generated interpretation of

the contractual obligations created by its auction regula-

tions: “Our ruling is based on the FCC’s interpretation

of its own regulations, to which we owe deference, but

to which the courts below refused deference on grounds

we conclude invalid.” Jd. at 27a (emphasis added).

The Second Circuit’s failure to apply applicable

bankruptcy-law standards and its decision to defer to the

FCC’s litigation-inspired interpretation of its auction

contracts conflicts with other court of appeals decisions

refusing to defer to agency interpretations of contractual

obligations, and with case law holding that no deference

is due to agency litigating positions. This Court’s re-

view is essential to resolve these conflicts.

A. The Decision Below Conflicts With Cases

Rejecting Deference For An Agency’s

Interpretation Of Its Own Contracts

The agency interpretation to which the court of ap-

peals deferred in this case is in essence an interpretation

of the terms of the FCC’s auction contract with high

bidders. Indeed, the FCC asserted below that its auction

regulations were intended to “correspond to the terms of

a standard auction contract” and to “incorporate the tra-

ditional measure of expectation damages for breach of

contract.” FCC C.A. Br. 43, 44.

Contrary to the Second Circuit’s decision to defer to

the FCC’s interpretation of its auction contracts, how-

ever, several courts of appeals have held that an agency

is not entitled to deference in interpreting its own con-

tracts, even where, as here, those contractual rights and

obligations are themselves contained in regulatory

documents. As then-Judge Breyer explained for the

First Circuit in Meadow Green-Wildcat Corp. v. Hatha-

way, 936 F.2d 601, 604 (1st Cir. 1991), “it would seem

surprising and unfair if the terms of [a regulatory docu-

ment that also serves as a contract], without so stating,

bind the [private party], but leave the [agency] free to

interpret those same terms as it wishes (limited only by

the bounds of ‘reasonableness’).”

The decision below is irreconcilable with the First

Circuit’s reasoning in Meadow Green. There, the court

held that a land use permit issued by the Forest Service, —

although issued pursuant to the agency’s regulatory du-

ties, was similar to a contract, and, therefore, that the

agency’s interpretation of that permit was not entitled to

deference under Chevron U.S.A. Inc. v. Natural Re-

sources Defense Council, Inc.,,467 U.S. 837 (1984).

The court based its decision on several factors, includ-

ing that (1) “the Permit document itself reads like a con-

tract,” (2) a primary purpose of the permits was “to offer

a permittee the security needed to raise many millions of

dollars in investment,” (3) the Forest Service treated the

permit “as if it were a kind of contract,” and (4) neither

Chevron nor any other authority from any court requires

deference to an agency’s interpretation of a contract.

936 F.2d at 604.

Each of these factors compels the conclusion that the

Second Circuit departed from settled law in deferring to

the FCC’s purported interpretation of the auction con-

tracts at issue here. Indeed, the FCC’s auction regula-

tions are even more clearly contractual than were the

land use permits at issue in Meadow Green. Unlike the

Forest Service in that case, the FCC does not (and can-

not) dispute that the auction regulations governing spec-

trum block licenses form an enforceable contract bind-

ing on both the licensee and the FCC. Nor is there any

doubt that Congress intended the FCC to enter into—

and be bound by—such commercial contracts: “The

Committee anticipates that in some instances the Com-

mission will act in a manner that is comparable to a

mortgage banker, who designs new mortgage instru-

ments in order to increase the universe of people who

can afford to buy homes.” H.R. REP. No. 111, 103d

Cong., Ist Sess. (1993), reprinted in 1993 U.S.C.C.A.N.

378, 582.

Moreover, even more so than the land use permits at

issue in Meadow Green, the FCC’s auction contracts are

designed to provide the licensee “the security needed to

raise many millions of dollars in investment.” 936 F.2d

at 604. The Second Circuit’s deference to the FCC’s in-

terpretation of these contracts is flatly inconsistent with

that purpose. As the First Circuit explained, “[w]e do

not see how a document, the terms of which one party

remains comparatively free to interpret to its own ad-

vantage, can provide the other party (and its financial

backers) the security, stability, or assurance a large and

long-term investment would seem to require.” Id.

The decision below also conflicts with the District of

Columbia Circuit’s decision in Transohio Sav. Bank v.

Director, Office of Thrift Supervision, 967 F.2d 598

iia

(D.C. Cir. 1992). There, the court held that the Office

of Thrift Supervision (“OTS”) was entitled to no defer-

ence in interpreting certain provisions of FIRREA that

to alter pre-existing forbearance agreements

between OTS and certain financial institutions. The

court rejected the agency’s deference arguments based

on its longstanding “concern about deferring to an

agency interpretation of an agreement to which the

agency is a party.” Jd. at 614. The court reiterated its

view that although an agency might be entitled to Chev-

ron deference for interpretations of agreements to which

it is not an interested party, a different rule applies when

an agency attempts to interpret its own contracts. Jd.

(citing National Fuel Gas Supply Corp. v. FERC, 811

F.2d 1563, 1571 (D.C. Cir. 1987)). In such circum-

stances, “‘dejerence might lead a court to endorse self-

serving views that an agency might offer in a post hoc

reinterpretation of its contract.’” 967 F.2d at 614 (quot-

ing National Fuel, 811 F.2d at 1571) (emphasis added).

Thus, the Second Circuit’s decision to defer to the

FCC’s interpretation of its own contracts directly con-

tradicts the rule announced by both the First Circuit and

the District of Columbia Circuit.

Contrary to the decision below, moreover, other

courts of appeals have refused to defer to an agency in-

terpretation that is based on the agency’s application of

general common law principles, rather than on the

agency’s particular expertise. The Fourth Circuit, for

example, in Burgin v. Office of Personnel Management,

120 F.3d 494 (4th Cir. 1997), rejected the OPM’s inter-

pretation of a provision in a government employee’s

health insurance plan. The court explained that al-

though deference to an agency’s interpretation of its

own regulations is generally required, “‘[w]hen the ad-

ministrative interpretation is not based on expertise in

the particular field, . . . but is based on general common

law principles, great deference is not required.” Id. at

497 (quoting Jicarilla Apache Tribe v. FERC, 578 F.2d

289, 292-93 (10th Cir. 1978)). Because “the essential

question” in Burgin, like the question in this case, was

“one of the interpretation of the contract’s language,” it

as “a question of law clearly within the competence of

courts” and was subject to de novo review. Id. at 497-

98 (citing Texas Gas Transmission Corp. v. Shell Oil

Co., 363 U.S. 263, 270 (1960)).9

The Second Circuit’s blind deference to the FCC’s

interpretation of its own contractual relationship with

NextWave also is inconsistent with—and threatens to

undermine—this Court’s decision in United States v.

Winstar Corp., 518 U.S. 839 (1996). The Second Cir-

cuit justified its deference to the FCC’s contract inter-

pretation because “[t]he FCC’s auction rules ... have

primarily a regulatory purpose: to ensure that spectrum

licenses end up in the hands of those most likely to fur-

ther congressionally defined objectives.” App., infra,

22a. “The fact that market forces are the technique used

to achieve that regulatory purpose does not turn the FCC

into a mere creditor... .” Id.

This Court in Winstar recognized that both the su-

pervisory merger agreements at issue there, and Con-

gress’s subsequent enactment of FIRREA, were “regula-

9 Deference is also inappropriate because the determina-

tion of when an allegedly fraudulent transfer occurred is

governed by federal bankruptcy law. See Barnhill v. John-

son, 503 U.S. 393, 397-98 (1992) (“‘What constitutes a

transfer and when it is complete’ is a matter of federal [bank-

tuptcy] law.”) (citation omitted). Obviously, the FCC has no

expertise or interpretive authority under the Bankruptcy

Code, and is therefore entitled to no deference on this ques-

tion. As this Court held in Adams Fruit Co. v. Barrett, 494

U.S. 638, 649-50 (1990), “[a] precondition to deference un-

der Chevron is a congressional delegation of administrative

authority,” and thus no deference is due when, as here,

“Congress has expressly established the Judiciary and not the

[agency] as the adjudicator of private rights of action arising

under the statute.”

tory” acts. See 518 U.S. at 894 (plurality opinion)

(“thrift regulation is, in fact, regulation, and . . . both the

supervisory mergers of the 1980’s and the subsequent

passage of FIRREA were meant to advance a broader

public interest”); id. at 920-21 (Scalia, J., concurring in

the judgment) (“Government regulation” was “the very

subject matter of these agreements, an essential part of

the quid pro quo”). Nevertheless, because “the gov-

ernment chose to regulate ... [by] enter[ing] into su-

pervisory merger agreements to convert some of its fi-

nancial insurance obligations into responsibilities of

private entrepreneurs,” it was still bound by the same

laws governing contract formation (and interpretation)

as private parties. Jd. at 894 (plurality opinion) (empha-

sis added); see also Cooke v. United States, 91 U.S. 389,

398 (1875) (when the United States “comes down from

its position of sovereignty and enters the domain of

commerce, it submits itself to the same laws that govern

individuals there”); accord United States v. Kimbell

Foods, Inc., 440 U.S. 715, 737 (1979) (“Congress has

not ... confer[red] special privileges on agencies that

enter the commercial field”).

That an agency entering into contracts with private

parties claims to have a regulatory purpose does not en-

title the agency to special treatment. As the plurality

opinion in Winstar explained, “when the United States

enters into contract relations”—as the FCC has unques-

tionably done here—“its rights and duties therein are

governed generally by the law applicable to contracts

between private individuals.” 518 U.S. at 895 (quoting

Lynch v. United States, 292 U.S. 571, 579 (1934)). The

decision below thus conflicts with settled doctrines of

other courts of appeals and this Court, and this Court’s

review is necessary to resolve this important conflict.

B. The Decision Below Conflicts With Cases

Rejecting Deference For An Agency’s Liti-

gating Positions

The FCC’s post-hoc “interpretations” of the auction

regulations to which the Second Circuit so completely

deferred are statements that were inserted into FCC or-

ders only after the FCC had been sued in bankruptcy-

related avoidance actions by several C-Block licensees.

The Second Circuit’s decision to give deference to such

a litigation-driven interpretation conflicts with decisions

of this Court and other appellate courts refusing to defer

to agency “interpretations” that amount to nothing more

than post-hoc litigating positions. Bowen v. George-

town Univ. Hosp., 488 U.S: 204, 212-13 (1988).

The primary order relied upon by the Second Circuit,

In re Applications for Assignment of Broadband Per-

sonal Communications Servs. Licenses, FCC 98-301,

1998 WL 889489 (Dec. 23, 1998), demonstrates that the

FCC’s seif-serving “interpretations” were motivated by

its litigation interests. The order itself concerned new

documentation the FCC was requiring of licensees seek-

ing approval to transfer all or part of their licenses, and

involved a licensee that was not itself in bankruptcy.

Nevertheless, the FCC inserted into that order the fol-

lowing sentence: “One document that we requested—

an Assignment and Assumption Agreement—is de-

signed to ensure that the government’s rights arising

from the licensee’s binding obligations to repay the

original bid price for the licenses (incurred upon

tance of the high bid and continued to date) gioaak~ not

be unduly compromised in bankruptcy or otherwise by

the assignment of this obligation.” Jd. Nothing else in

the order relates to the timing of payment obligations.

{In a separate statement accompanying that order,

FCC Chairman William Kennard admitted that the order

addressed issues that “only emerge[d] as a result of les-

sons learned during litigation.” Jd. Moreover, FCC

Commissioner Harold W. Furchtgott-Roth wrote sepa-

rately to highlight the unfair way in which the licensee

in that order, Tritel Communications, Inc., had been hi-

jacked by the FCC’s bankruptcy litigation tactics:

“Rather than treat [Tritel’s] applications [to transfer cer-

tain of its licenses related to a routine corporate restruc-

turing] on their face, FCC staff decided to link these

transfers to the Commission’s C-Block bankruptcy liti-

gation strategy in which Tritel had no direct role. As a

result, Tritel found itself at the mercy of the FCC litiga-

tion tactics, not business necessities.” Jd

The Second Circuit’s decision to defer to the FCC’s

litigation-inspired interpretation directly conflicts with a

long line of Fifth Circuit cases holding that an agency’s

post-hoc litigating position is not entitled to deference,

even where, as here, it has been inserted into “formal”

regulatory documents short of full notice and comment

tulemaking. See Waste Control Specialists v. United

States Dep't of Energy, 141 F.3d 564, 567 (Sth Cir.

1998) (according no deference to Department of En-

ergy’s formalized interpretations “because [DOE] had

not enunciated its interpretation prior to the litigation”);

United States v. Food, 2,998 Cases, 64 F.3d 984, 987

n.5 (Sth Cir. 1995) (“Because it appears the FDA inter-

preted § 334 and § 381 at such a time and in such a

manner so as to provide a convenient litigating position

for this suit, we . . . conclude that the FDA’s position is

not controlling.”); Irving Indep. Sch. Dist. v. Packard

Properties, 970 F.2d 58, 64 (Sth Cir. 1992) (FDIC inter-

pretation of governing statute, formalized in a legal

memorandum, afforded no deference because memo-

randum was “issued during pending litigation”).

Like the decision below, these cases typically in-

volve agencies that memorialize policies or interpreta-

tions in response to litigation but not through full-scale

notice and comment procedures. See generally Waste

Control Specialists, 141 F.3d at 567 (Department of En-

ergy’s policy was “set forth only in its memorandum,

which [was] not the product of a formal rulemaking”).

The Fifth Circuit, unlike the Second Circuit below, cor-

rectly recognizes that such tactical post-litigation

agency memoranda and rulings devised after the onset

of adversary proceedings simply do not “reflect [a] ...

fair and considered judgment on the matter,” Auer v.

Robbins, 519 U.S. 452, 462 (1997). Instead, those con-

structions are merely articulations of what the agency

thinks it needs to win its case in court, and are therefore

undeserving of deference.

The District of Columbia Circuit, on the other hand,

has interpreted this Court’s decision in Auer to mean

that agency positions adopted for the first time in a case

in which the agency is a litigant may be entitled to def-

erence “so long as they represented the agency’s ‘fair

and considered judgment on the matter.’” United Sen-

iors Ass'n v. Shalala, 182 F.3d 965, 971 (D.C. Cir.

1999) (citations omitted). This Court’s Auer decision,

however, involved deference to the judgment of a fed-

eral agency announced in an amicus brief, and thus did

not involve an agency interpretation adopted in direct

response to litigation involving the agency itself. To

import Auer’s reasoning into cases, such as this one,

where the agency is a litigant, distorts Auer and directly

conflicts with this Court’s decision in Bowen v. George-

town University Hospital, which held that it is “entirely

inappropriate” for courts to defer to an agency’s “con-

venient litigating position.” 488 U.S. at 212-13.

The decision below exacerbates the existing con-

flicts and confusion on this important and recurring is-

sue of agency deference. This Court’s review is war-

ranted to clarify this unsettled area of the law.

C. The Decision Below Contradicts The FCC’s

Own Regulations And Principles Of Con-

tract And Auction Law

In addition to improperly deferring to the FCC’s in-

terpretation of its auction regulations, the Second Cir-

cuit violated relevant legal standards when it determined

that NextWave became obligated to pay the full pur-

chase price for the licenses at the close of the auctions,

rather than when the licenses were granted many

months later. App., infra, 34a. The Second Circuit

based its decision primarily on 47 C.F.R. § 1.2104(g), a

penalty provision specifying the penalties that auction

participants may be obliged to pay if they “withdraw

high bids during the course of an auction,” or “default[]

or [are] disqualified after the close of such an auction.”

According to the Second Circuit, because the FCC’s

ty rules provide that a high “bidder is liable for any

shortfall between the subsequent winning bid and its

own,” the penalty “is the functional analog of expecta-

tion damages,” which high bidders become liable to pay

at the close of the auction. App., infra, 29a-30a.

Contrary to the Second Circuit’s reasoning, how-

ever, the “shortfall” penalty is plainly different than the

full bid amount. The penalty for withdrawing a high bid

during an auction is “the difference between the amount

bid and the amount of the winning bid the next time the

license is offered,” 47 C.F.R. § 1.2104(g)(1), the penalty

that the Second Circuit found analogous to expectation

damages. The penalty for default or disqualification af-

ter the close of the auction is that same amount, plus 3

percent of the subsequent winning bid (or of the de-

faulted or disqualified bid, if that is lower). Jd.

§ 1.1204(g)(2). Neither penalty, however, obligates the

bidder to pay the full amount of the bid. A full-payment

obligation arises only after the FCC awards the licenses

and the licensee executes promissory notes for the re-

mainder of the purchase price.

The contingent “penalty” obligation relied upon be-

low is on its face entirely unreiated to the licensee’s

contractual obligation to pay the full purchase price for

its licenses. Far from being an “analog” to contract

damages, as the Second Circuit held, the potential pen-

alty arises even before the FCC accepts the high bid-

der’s offer and the auction closes, and thus, under the

Second Circuit’s own reasoning, cannot equate to a con-

tractual obligation on the part of the bidder to pay the

full bid price. The penalty “obligations,” moreover, are

contingent upon early withdrawal or default, and

NextWave has never been assessed any such penalty.

NextWave’s avoidance action thus did not seek to avoid

a never-imposed penalty, but instead was aimed solely

at the full-payment burden NextWave assumed in 1997,

in exchange for the licenses granted by the FCC many

months after the close of the auction in mid-1996. —

This Court should grant review to eliminate the con-

fusion about this important question that affects the dis-

position of billions of dollars and numerous PCS li-

censes for past and future bidders across the country.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

Of Counsel: THEODORE B. OLSON

Counsel of Record

DEBORAH L. SCHRIER-RAPE DOUGLAS R. COX

MICHELLE V. LARSON THOMAS G. HUNGAR

ANDREWS & KURTH LLP DAVID B. SALMONS

1717 Main Street GIBSON, DUNN & CRUTCHER LLP

Suite 3700 1050 Connecticut Avenue, N.W.

Dallas, TX 75201 Washington, D.C. 20036

(214) 659-4400 (202) 955-8500

G. ERIC BRUNSTAD, JR. DONALD B. VERRILLI

BINGHAM DANA LLP JENNER & BLOCK

One State Street 601 Thirteenth Street, N.W.

Hartford, Connecticut 06103 Washington, D.C. 20005

(860) 240-2700 (202) 639-6000

Counsel for Petitioner

June 9, 2000

fee Lo

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 1999

(Argued: November 1, 1999 Decided: December 22, 1999)

Docket No. 99-5063

In Re: NEXTWAVE PERSONAL COMMUNICA-

TIONS, INC.

Debtor.

FEDERAL COMMUNICATIONS COMMISSION,

Appellant,

-V-

NEXTWAVE PERSONAL COMMUNICATIONS,

INC.,

Appellee.

Before: McLAUGHLIN, JACOBS and SACK,

Circuit Judges.

Appeal from a judgment of the United States Dis-

trict Court for the Southern District of New York

(Charles L. Brieant, Judge) affirming five decisions and

orders of the United States Bankruptcy Court for the

Southern District of New York (Adlai S. Hardin, Bank-

ruptcy Judge) rendered in the adversary proceeding of

NextWave Personal Communications, Inc. against the

Federal Communications Commission. The district and

bankruptcy courts exceeded their jurisdiction by in ef-

fect intervening in the allocation of radio spectrum li-

censes and misconstrued the nature of the Appellee’s

financial obligations under the Federal Communications

Commission’s spectrum auction rules. Accordingly, we

reverse the judgment of the district court affirming the

orders of the bankruptcy court and remand for further

proceedings consistent with this opinion, if any are nec-

essary.

DANIEL S. ALTER, Assistant United

States Attorney, New York, NY (Mary Jo

White, United States Attorney for the

Southern District of New York and

Gideon A. Schor, Assistant United States

Attorney, Of Counsel), for Appellant.

DEBORAH L. SCHRIER-RAPE, An-

drews & Kurth L.L.P., Dallas, TX (Greg-

~ ory H. Bevel, Michelle V. Larson and

James P. Muenker, Of Counsel), for Ap-

pellee.

David M. Friedman, Kasowitz, Benson,

Torres & Friedman L.L.P., New York,

NY, for amicus curiae Official Committee

of Unsecured Creditors.

Anthony A. Dean, Windels, Marx, Da-

vies & Ives; New York, NY (Charles E.

Simpson, Of Counsel), for amicus curiae

Urban Comm-North Carolina, Inc. —

PER CURIAM:

The Federal Communications Commission (the

“FCC”) appeals from an order of the United States Dis-

trict Court for the Southern District of New York

(Charles L. Brieant, Judge), NextWave Personal Com-

munications, Inc. v. FCC (In re NextWave Personal

Communications, Inc.), No. 99 Civ. 4439 (CLB)

(S.D.N.Y. July 27, 1999), affirming five decisions and

orders of the United States Bankruptcy Court for the

Southern District of New York (Adlai S. Hardin, Bank-

ruptcy Judge).! On November 24, 1999, we issued an

order reversing the judgment of the district court and

remanding the case for further proceedings, with an

opinion to follow. This is that opinion.

In pertinent part, the decisions and orders of the

bankruptcy court, affirmed by the district court judg-

ment from which the FCC appeals, held that the FCC’s

grant to NextWave Personal communications, Inc.

(“NextWave’”) of sixty-three radio spectrum licenses for

which NextWave had been the high bidder at the FCC’s

1995-96 C-Block” auction (the “Licensees”) was a con-

structively fraudulent conveyance for purposes of 11

U.S.C. § 544 (“§ 544”). See NextWave IV.A, 235 B.R.

1 Jn re NextWave Personal Communications, Inc., 235

B.R. 314 (Bankr. S.D.N.Y. 1999) (June 16, 1999 decision

denying motion to lift automatic stay) (NextWave V);

NextWave Personal Communications, Inc. v. FCC (In re

NextWave Personal Communications, Inc.), 235 B.R. 277

(Bankr. S.D.N.Y. 1999) (May 12, 1999 decision on fraudu-

lent conveyance claim) (NextWave IV.A) as supplemented by

NextWave Personal Communications, Inc. v. FCC (In re

NextWave Personal Communications, Inc.), 235 B.R. 305

(Bankr. $.D.N.Y. 1999) (June 22, 1999 decision on remedy)

(NextWave IV.B); NextWave Personal Communications, Inc.

v. FCC (In re NextWave Personal Communications, Inc.),

No. 98-21529 (Bankr. S.D.N.Y. Apr. 2, 1999) (oral denial of

FCC’s motion to dismiss) (NextWave III); NextWave Per-

sonal Communications, Inc. v. FCC (In re NextWave Per-

sonal Communications, Inc.), 235 B.R. 272 (Bankr. $.D.N.Y.

1999) (Feb. 16, 1999 decision denying to FCC and granting

to debtor partial summary judgment with regard to date upon

which obligations were incurred) (NextWave Il); NextWave

Personal Communications, Inc. v. FCC (In re NextWave Per-

sonal Communications, Inc.), 235 B.R. 263 (In re NextWave

Personal Communications, Inc.), 235 B.R. 263 (Bankr.

S.D.N.Y. 1998) (Dec. 7, 1998 decision granting in part and

denying in part FCC’s motion to dismiss) (NextWave I).

at 304. The bankruptcy court therefore avoided $3.7 bil-

lion of NextWave’s $4.74 billion obligation to the FCC,

allowing NextWave to keep the Licenses while it reor-

ganized in bankruptcy. See NextWave IV.B, 235 B.R.

305. We hold that the bankruptcy court had no authority

thus to interfere with the FCC’s system for allocating

spectrum licenses, and that in any event it wrongly con-

cluded that the Licences were fraudulently conveyed by

failing to defer to the FCC’s interpretation of its own

regulations when determining the point at which

NextWave’s obligations were incurred for § 544 pur-

poses. We therefore reverse the judgment of the district

court affirming the orders of the bankruptcy court and

remand the case to the bankruptcy court for further pro-

ceedings consistent with this opinion, if any are neces-

sary.

BACKGROUND

In 1993 Congress passed several amendments to the

Federal Communications Act (the “FCA”), one of which

added § 309(j). See Omnibus Budget Reconciliation Act

of 1993, Pub. L. No. 103-66, § 6002 (a), 107 Stat. 312,

387 (1993). Section 309(j) authorized the FCC to con-

duct competitive bidding auctions for radio spectrum

licenses. The FCC was instructed to ensure that as part

of its auction plan certain blocks of spectrum would be

reserved for qualified entities, including small busi-

nesses, and that deferred payment plans on favorable

terms would be available to them. See 47 U.S.C.

§ 309(4)(3)(B), G)(4)(D) . Pursuant to these instructions,

the FCC reserved a block of 493 licenses known as the

“C-block licenses” for the use of qualified entities pro-

viding “personal communications services,” an emerg-

ing form of wireless communications technology.

On May 6 and July 16, 1996, the FCC concluded

two sets of C-block auctions, which produced some

ninety successful bidders.2 NextWave, a startup com-

pany established to take advantage of the opportunities

created by § 309(j), was the high bidder for sixty-three

C-block licenses. Its aggregate winning bids amounted

to $4.74 billion.

Pursuant to the FCC regulations issued under

§ 309(j), winning bidders that were “small businesses” —

were required to pay only ten percent of their winning

bids in cash; the remaining ninety percent could be paid

in installments over a ten-year period at below market

interest rates. 47 C.F.R. § 24.711(b)(3). NextWave

made the required five percent down payment on the Li-

censes when it was announced as the high bidder on

them in the summer of 1996, and subsequently depos-

ited another five percent with the FCC on January 9,

1997, immediately after its application for the Licenses

was conditionally approved.

The four-month gap between those two dates re-

sulted from the FCC’s auction rules under which a win-

ning bid did not automatically trigger the grant of the

2 The C-block auctions ending July 16 involved licenses

that became available when high bidders from the first auc-

tion defaulted on their initial down payments.

3 As part of the FCC’s auction rules, bidders were required

to deposit “qualifying amounts” in order to participate in the

auction. NextWave deposited qualifying amounts of

$79,225,000 on December 1, 1995 and $6,984,244 on

June 13, 1996. On May 6, 1996 it was declared the winner

of 56 of the Licenses, for which it deposited an additional

$130,834,333 with the FCC. On July 16 it was named the

winner of an additional seven Licenses, for which it depos-

ited $20,138,825 on July 23. At the close of the bidding

process, it had therefore deposited a total of $237,182,402, or

approximately five percent of its winning bids, with the FCC.

See NextWave Il, 235 B.R. at 273.

license or iicenses in question. A winning bidder was

required to submit a “long form” application, and the

grant of a winning bidder’s licenses was conditioned

upon that bidder’s ability to demonstrate through its ap-

plication that it was in compliance with FCC regulations

and statutory requirements. While over ninety percent

of the winning bidders at the C-block auctions were

granted their licenses on September 17, 1996,

NextWave’s ownership structure, specifically its alleg-

edly impermissibly high percentage of foreign owner-

ship, was challenged. The Licenses were conditionally

granted to NextWave on January 3, 1997, after

NextWave submitted to the FCC a plan to bring its capi-

tal structure into compliance with FCC regulations. On

February 14, 1997, the FCC granted NextWave the Li-

censes conditioned upon NextWave issuing a series of

promissory notes for the balance of its payments. On

February 19, 1997, NextWave executed these promis-

sory notes (the “Notes”), backdated to January 3. The

Notes aggregated $4.27 billion, representing the remain-

ing ninety percent of the bid price. By the time the

Notes were executed, however, the market value of the

Licenses, as later determined by the bankruptcy court,

see NextWave IV.A, 235 B.R. at 303, had fallen to less

than a quarter of the amount that NextWave had bid for

them.

The C-block auctions were part of a series of auc-

tions the FCC conducted to allocate spectrum for new

technological uses. Prior to the C-block auctions, it had

conducted the A- and B-block auctions, and in June

1996 it announced that it would conduct the D-, E- and

F-block auctions starting on August 26, 1996. The win-

ning bids at the A-, B-, D-, E- and F-block auctions were

sharply lower than the winning bids at the C-block auc-

tions when measured in dollars per MHz-Pop, a gener-

ally accepted industry measurement standard.

Since they were obligated to pay what turned out to

be much higher prices for their licenses than other licen-

sees, most of the winning C-block bidders, including

NextWave, had difficulty securing the financing neces-

sary for them to meet their financial commitments.

They thus faced the prospect of an early default cn their

installment payments to the FCC.

The winning C-block bidders therefore petitioned

the FCC for relief. In response, the FCC suspended the

C-block installment payments and initiated an elaborate

administrative process looking toward a restructuring of

the C-block licensees’ obligations.

On October 16, 1997, at the culmination of this

process, the FCC issued a restructuring order, Jn the

Matter of Amendment of the Commission’s Rules Re-

garding Installment Payment Financing for Personal

Communications Services (PCS) Licensees, Second Re-

port and Order, FCC 97-342, 12 F.C.C.R. 16436

(Oct. 16, 1997), 1997 WL 643811 (F.C.C.) (the “Re-

4 The MHz, or megahertz of radio frequency, in question

determines the carrying capacity of a block of wireless spec-

trum. The A-, B-, and C-block licenses consisted of 30 MHz

of spectrum; the D-, E-, and F-blocks of 10. One “Pop”

represents 1000 persons within the geographic area covered

by a particular licensing block. $/MHz-Pop therefore meas-

ures the amount paid for a license that would allow the provi-

sion of a particular level of communications data to a particu-

lar number of people. NextWave’s winning bids averaged at

least $1.43/MHz-Pop, whereas the D-, E-, and F-block win-

ning bids averaged $.33/MHz-Pop. The F-block auction,

which like the C-block auction was reserved for qualified

entities, produced winning bids that averaged only

.246/MHZ-pops.

structuring Order”), which offered troubled C-block li-

cense holders three mutually exclusive restructuring op-

tions, ranging from amnesty -- return of the licenses in

exchange for forgiveness of debt obligations -- to a plan

that allowed bidders to keep as many of their licenses as

they could pay for by converting seventy percent of their

down payment into a prepayment of the full bid price of

a smaller number of licenses. The FCC decided that it

would be contrary to the public interest to forgive a por-

tion of the obligations, thereby allowing bidders to keep

their licenses at a significantly reduced price, because

the C-block auction had been designed to ensure that li-

censes were allocated to users who could demonstrate,

through their ability to pay the highest price, that they

possessed the most highly valued use for the licenses.

Id. at F¥ 5, 19.

In response to the oppositions, petitions and replies

that it received after the release of the Restructuring Or-

der, the FCC issued a reconsideration order on

March 24, 1998. See In the Matter of Amendment of the

Commission's Rules Regarding Installment Payment Fi-

nancing for Personal Communications Services (PCS)

Licenses, Order on Reconsideration of the Second Re-

port and Order, F.C.C. 98-46, 13 F.C.C.R. 8345

(Mar. 24, 1998), 1998 WL 130176 (F.C.C.) (the “Re-

consideration Order”). The Reconsideration Order of-

fered licensees slightly more flexibility in their decision-

making process than the Restructuring Order, but other-

wise left the Restructuring Order’s framework intact. In

response to still further petitions from C-block licensees,

the FCC conducted yet more proceedings and issued a

second reconsideration order, Jn the Matter of Amend-

ment of the Commission’s Rules Regarding Installment

Payment Financing for Personal Communications Ser-

vices (PCS) Licenses, Second Order on Reconsideration

of the Second Report and Order, F.C.C. 99-66, 14

F.C.C.R. 6571 (Apr. 5, 1999), 1999 WL 183822

(F.C.C.) (the “Second Reconsideration Order”), which

essentially reaffirmed the determinations the FCC had

made in its previous two orders.

NextWave actively participated in the administrative

process that led to the promulgation of these orders, but

it remained dissatisfied with the results. On May 29,

1998, NextWave filed a petition with the Court of Ap-

peals for the District of Columbia Circuit asking for re-

view of the orders. On June 8, 1998 -- the deadline for

selecting from the menu of restructuring options pro-

vided by the orders -- it asked both the FCC and the

Court of Appeals for a stay of those orders so that it

would have more time to consider its options. The FCC

and the Court of Appeals each denied NextWave’s re-

quest. See NextWave Telecom, Inc. v. FCC, No. 98-

1255 (D.C. Cir. June 5, 1998); In the Matter of Petition

of NextWave Telecom, Inc. for a Stay of the June 8,

1998, Personal Communications Services C Block Elec-

tion Date, FCC 98-104, 13 F.C.C.R. 11880 (June 1,

1998), 1998 WL 278735 (F.C.C.). The same day,

NextWave filed a Chapter 11 petition and instituted an

adversary proceeding against the FCC that sought to

avoid the company’s obligations resulting from its ac-

quisition of the Licenses. See NextWave I, 235 B.R. at

. 267.

NextWave asserted two claims in the adversary pro-

ceeding. First, it argued that the transaction in which it

acquired the Licenses was a fraudulent conveyance sub-

ject to avoidance under § 544 of the Bankruptcy Code

(the “Code”). Second, it sought equitable subordination

of the FCC’s claim based on the FCC’s ‘“‘inequitable,

unconscionable and unfair conduct’’ in auctioning the

D-, E- and F-block licenses before approving

NextWave’s application for the C-block Licenses. The

FCC moved to dismiss both claims.

The bankruptcy court dismissed the second claim

for lack of subject matter jurisdiction, see NextWave I,

235 B.R. at 271; NextWave has not appealed from that

order. Only the first claim is therefore before us. The

10a

FCC argued below that the bankruptcy court also lacked

subject matter jurisdiction over this claim because juris-

diction over actions brought against the FCC in its regu-

latory capacity lies exclusively in the federal courts of

appeals pursuant to 28 U.S.C. § 2342 and 47 U.S.C.

§ 402. The FCC also argued that the FCA preempted

state fraudulent conveyance law. The bankruptcy court

rejected these arguments, holding that for purposes of

the fraudulent conveyance claim, the FCC was acting in

its capacity as creditor rather than as regulator. See

NextWave I, 235 B.R. at 269-71. The court therefore

concluded that it had jurisdiction over the claim, and

further found that the FCA did not conflict with or pre-

empt its application of fraudulent conveyance law under

§ 544.

Section 544 (b) of the Code allows the avoidance of

“any transfer of an interest of the debtor in property or

any obligation incurred by the debtor that is voidable

under applicable law.” Applicable law includes various

state fraudulent conveyance statutes, many based on the

Uniform Fraudulent Transfer Act.> See Sender v.

Simon, 84 F.3d 1299, 1304 (10th Cir. 1996). In analyz-

ing a fraudulent conveyance claim under the act, courts

determine whether the debtor was engaged or about to

engage in a transaction for which the remaining assets of

the debtor were unreasonably small in relation to the

size of the transaction. If so,.and if the consideration

provided by the debtor for the allegedly fraudulent trans-

fer was not reasonably equivalent to what the debtor re-

ceived in return on the effective date of the transfer, then

5 The bankruptcy court applied California, New York, and

Washington, D.C. fraudulent conveyance law as the “appli-

cable law,” holding that there was no substantive difference

between the laws of the three sacmress See NextWave

Ty’.A, 235 B.R. at 288-89.

lla

the transfer is deemed constructively fraudulent and can

be avoided.© See NextWave IV.A, 235 B.R. at 287-89.

In NextWave’s case, if there is a § 544 claim at all, its

resolution turns on when NextWave’s obligations to pay

arose. If that is deemed to be the close of the C-block

bidding, then the transfer could not be constructively

fraudulent because NextWave paid exactly the market

price for the Licenses as of that date, as determined by

its own bid. See NextWave IV.A, 235 B.R. at 297 n.9.

However, if the effective date is deemed to be January 3,

the date on which the Licenses were conditionally

granted, or February 19, 1997, the date on which they

were finally granted in return for the executed Notes,

then the obligation when it arose was for an amount far

greater than what the bankruptcy court deemed to be the

market price of the Licenses.

Hoping to resolve this issue quickly, the FCC

moved for summary judgment on the question of when

NextWave’s $4.74 billion obligation was incurred. De-

spite the FCC’s argument that under its regulations the

entire obligation became due at the close of the C-block

auction, the bankruptcy court found that the effective

date of NextWave’s obligations for the purposes of

§ 544(b) was January 3, 1997. See NextWave II, 235

B.R. at 276. The court acknowledged that 47 C.F.R. §

1.2104 subjected a winning bidder to a penalty upon de-

fault based on the difference between its bid and the

high bid on reauction of the licenses, but held that

“{njothing in this calculation explicitly or implicitly

6 Avoidance differs considerably from rescission. Rescis-

sion unwinds the transaction and restores the status quo ante,

whereas avoidance allows the debtor to retain the benefit of

its bargain while rewriting the debtor’s obligations under that

same bargain.

12a

binds the winning bidder to the full amount of its bid.”

Id. at 275.

The FCC then moved to dismiss the complaint on

the ground thet the avoidance claim challenged a con-

tractual relationship with the United States entered into

pursuant to a national regulatory scheme, and that fed-

eral common law, rather than state fraudulent convey-

ance law, therefore was the “applicable law” under

§ 544. In an oral decision, NextWave IIl, tr. at 50-51,

the bankruptcy court refused to create new federal

common law to govern the situation, reasoning that

fraudulent conveyance law did not abrogate the explicit

terms or purposes of the regulatory scheme under §

309(j). See id., tr. at 53-54.

The parties then proceeded to trial. The bankruptcy

court concluded under California law that NextWave’s

obligations were incurred on February 19, 1997; that on

that date the Licenses were worth $1,023,211,000; and

that all obligations above that amount were construc-

tively fraudulent and therefore avoided. Since

NextWave had already paid $474,364,806, or ten per-

cent of its original high bid, to the FCC as a down pay-

ment, the remaining obligation was reduced to

$548,846, 194. See NextWave IV.A, 235 B.R. at 304;

NextWave IV.B, 235 B.R. at 306. The avoidance remedy

allowed NextWave to keep the Licenses while obligat-

ing it to pay less than one-quarter of the amount it had

bid for them.

The FCC appealed to the district court, which af-

firmed for substantially the reasons stated by the bank-

ruptcy court. NextWave Personal Communications, Inc.

v. FCC (In re NextWave Personal Communications,

Inc.), No. 99 Civ. 4439 (CLB) (S.D.N.Y. July 27, 1999).

This appeal, which we have heard on an expedited basis,

followed.

13a

DISCUSSION

I. Standard of Review

Our review of the district court’s decision affirming

the bankruptcy court orders is plenary. We therefore

undertake an independent examination of the legal and

factual findings of the bankruptcy court, reviewing its

findings of law de novo and its findings of fact for clear

error. See Kabro Assocs. of West Islip, LLC v. Colony

Hill Assocs. (In re Colony Hill Assocs.), 111 F.3d 269,

273 (2d Cir. 1997).

II. The Authority of the Bankruptcy and Dis-

trict Courts

The radio (or electromagnetic) spectrum belongs to

no one. It is not property that the federal government can

buy or sell. It is no more government-owned than is the

air in which Americans fly their airplanes or the territo-

rial waters in which they sail their boats.

Although not owned by the federal government, the

radio spectrum is subject to strict governmental regula-

tion.

Before 1927, the allocation of [radio] fre-

quencies was left entirely to the private

sector, and the result was chaos. It quickly

became apparent that broadcast frequen-

cies constituted a scarce resource whose

use could be regulated and rationalized

only by the Government. Without gov-

ernment control, the medium would be of

little use because of the cacophony of

ing voices, none of which could be

clearly and predictably heard.

Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 375-

76 (1969) (footnotes omitted). The scarcity of radio fre-

quencies therefore required a regulatory mechanism to

divide the electromagnetic spectrum and assign specific

frequencies to specific users. See Turner Broadcasting

14a

Sys., Inc. v. FCC, 512 U.S. 622, 637-38 (1994); see also

National Broadcasting Co. v. United States, 319 U.S.

190, 216 (1943) (“The facilities of radio are not large

enough to accommodate all who wish to use them.

Methods must be devised for choosing from among the

many who apply.”). Since 1934, that mechanism has

been the licensing of blocks of spectrum for the “public

interest, convenience, or necessity,” under the FCA, 47

U.S.C. § 307(a), by the FCC. See generally FCC v

Pottsville Broadcasting Co., 309 U.S. 134, 136-38

(1940).

A license does not convey a property right; it merely

permits the licensee to use the portion of the spectrum

covered by the license in accordance with its terms. See

47 U.S.C. § 301 (stating the purpose of the FCA, “to

provide for the use of [radio] channels, but not the own-

ership thereof’); FCC v. Sanders Bros. Radio Station,

309 U.S. 470, 475 (1940) (“[N]o person is to have any-

thing in the nature of a property night as a result of the

granting of a license.”). Licenses are revocable by the

FCC, and the FCC can impose conditions upon them in

the name of the-public good. See 47 U.S.C. § 308(b).

Historically, the FCC assigned licenses through a

system of comparative hearings, rating and ranking ap-

plicants under a public interest standard. See 47 U.S.C.

§ 309(a). Partially in response to the huge administra-

tive burden that this method of allocation placed on the

FCC, Congress amended the FCA in 1981 by adding

§ 309(i), which allowed the FCC to award licenses by

randomly selecting licensees from the qualified appli-

cant pool. See Omnibus Budget Reconciliation Act of

1981, Pub. L. No. 97-35, § 1242, 95 Stat. 357, 736

(codified at 47 U.S.C. § 309(1)).

The use of lotteries lessened the administrative bur-

den, but encouraged speculation and, ultimately, failed

to allocate licenses to those most likely to use them most

efficiently or beneficially. Especially in light of the pro-

liferation of new spectrum-dependent communications

15a

technologies, a method was needed that would direct li-

censes toward those entities and technologies that would

put them to the best use. See H.R. Rep. No. 103-111, at

248 (1993) (the “Committee Report”), reprinted in

1993 U.S.C.C.A.N. 378, 575.

In its search for such a methodology, Congress came

to the conclusion that using market forces to allocate

spectrum could accomplish congressionally defined pol-

icy goals. As the House Committee on Energy and

Commerce explained, “[A] carefully designed system to

obtain competitive bids from competing qualified appli-

cants can speed delivery of services, promote efficient

and intensive use of the electromagnetic spectrum, pre-

vent unjust enrichment, and produce revenues to com-

pensate the public for the use of the public airwaves.”

Id. at 253, reprinted in 1993 U.S.C.C.A.N. at 580. Con-

gress therefore enacted 47 U.S.C. § 309(j) authorizing

the I FCC to develop a system for allocating

through a competitive bidding process. See Omnibus

Budget Reconciliation Act of 1993, Pub. L. No. 103-66,

§ 6002(a), 107 Stat. 312, 387 (1993). Section 309(j)(3)

requires the FCC to design a system of competitive bid-

ding that protects the public interest and promotes the

following substantive objectives:

(A) the development and rapid

deployment of new technologies, products,

and services for the benefit of the public,

including those residing in rural areas,

without administrative or judicial delays;

(B) promoting economic oppor-

tunity and competition and ensuring that

new and innovative technologies are read-

ily accessible to the American people by

avoiding excessive concentration of li-

censes and by disseminating licenses

among a wide variety of applicants, in-

cluding small businesses, rural telephone

l6a

companies, and businesses owned by

members of minority groups and women;

portion of the value of the public spectrum

resource made available for commercial

use and avoidance of unjust enrichment

through the methods employed to award

uses of that resource; [and]

(D) efficient and intensive use of

the electromagnetic spectrum... .

47 U.S.C. § 309()(3).

While the FCC was expected to “recover[] for the

public a portion of the value of the public spectrum” and

to avoid “unjust enrichment,” the broader purpose of

§ 309(j) was to create an efficient regulatory regime

based on the congressional determination that competi-

tive bidding is the most effective way of allocating re-

sources to their most productive uses. The FCC was not

asked to sell off the spectrum (something it did not own)

in an effort to raise as much money as possible; it was

not asked to develop a free-market system to maximize

revenue.’ Instead, it was told to auction licenses to the

7 Section 309(j) (7) (A) specifically limits the degree to

which the FCC can designate the generation of revenue as a

factor in the “public interest,” demonstrating Congress’s in-

tent that satisfaction of the FCA’s objectives not be equated

with income maximization. “[T]he Commission may not

base a finding of public interest, convenience, and necessity

on the expectation of federal revenues.” 47 U.S.C. § 309(j)

(7) (A). “While Congress has charged [the FCC] to recover a

portion of the value of the public spectrum made available

via competitive bidding,” the process “does not amount to

maximizing revenue, nor is it [the FCC’s] sole objective.”

In the Matter of Implementation of Section 309(j) of the

Communications Act--Competitive Bidding, Second Report

[Footnote continued on next page]

17a

highest bidder because such a system was thought likely

to promote the development of new technologies and

encourage efficient use of the spectrum, while simulta-

neously recouping some of the value of the spectrum for

the public. See Committee Report at 253, reprinted in

1993 U.S.C.C.A.N. at 580.

In implementing § 309(j), the FCC echoed the con-

gressional rationale: “[A]uction designs that award li-

censes to the parties that value them most highly will

best achieve” the goals set forth by Congress. Jn the

Matter of Implementation of Section 309(j) of the Com-

munications Act--Competitive Bidding, Second Report

and Order, FCC 94-61, 9 F.C.C.R. 2348 q 70 (Apr. 2 20,

1994), 1994 WL 412167 (F.C.C.) (“Second

The FCC’s views reflect a classical belief in the efficacy

of market forces:

Since a bidder’s abilities to introduce

valuable new services and to deploy them

quickly, intensively, and efficiently in-

creases the value of a license to a bidder,

an auction design that awards licenses to

those bidders with the highest willingness

to pay tends to promote the development

and rapid deployment of new services in

each area and the efficient and intensive

use of the spectrum.

Id. 471.

Starting from this premise -- that “[b]Jecause new li-

censes would be paid for, a competitive bidding system

[would] ensure that spectrum is used more productively

and efficiently than if handed out for free,” Committee

[Footnote continued from previous page]

and Order, FCC 94-61, 9 F.C.C.R. 2348 4 73 (Apr. 20,

1994), 1994 WL 412167 (F.C.C.).

18a

Report at 249, reprinted in 1993 U.S.C.C.A.N. at 576 --

the FCC made “full and timely payment of the winning

bid” a regulatory condition for obtaining and retaining a

spectrum license acquired through a § 309(j) auction.

See 47 C.F.R. § 24.708.

This “payment in full” requirement has a regulatory

purpose related directly to the FCC’s implementation of

the spectrum auctions. The FCC gave considerable

thought to the problem of how to “deter frivolous or in-

sincere bidding.” Second Order J 171. It decided that

it would be “critically important to the success of our

system of competitive bidding ... [to] provide strong

incentives for potential bidders to make certain of their

qualifications and financial capabilities before the auc-

tion so as to avoid delays in the deployment of new ser-

vices to the public that would result from litigation, dis-

qualification and re-auction.” Id. 4 197.

Generally, bidders were required to obtain purely

private financing and to pay up front for their licenses.®

See 47 C.F.R. § 1.2109(a); Second Order 9 194. But

“designated entities,” such as NextWave -- “designated”

because they were less financially powerful than non-

“designated” bidders and therefore presumably unable to

pay up front -- were allowed to pay in installments. See

47 C.F.R. § 24.711(b); Second Order | 194. It was im-

portant for the functioning of the auction of licenses to

“designated entities” that the FCC’s default rules and

penalties be enforceable, because the FCC relied upon

them as a substitute for conducting the “detailed credit

checks” and other forms of due diligence that otherwise

would be necessary to ensure, within the framework of a

competitive auction method of spectrum allocation, that

8 “Designated entities” include “small businesses, rural

telephone companies and women- and minority-owned

firms.” Second Order { 6.

19a

the licenses would be awarded to the appropriate enti-

ties. See Second Order ff 194, 197-98.9

For entities like NextWave that chose to pay the

balance of their winning bids in installments, payment of

the installments in full was explicitly made a condition

of license retention. See 47 C.F.R. § 1.2110(f)(4)(iii).

When this condition was challenged as a result of the

precipitous decline in auction values following the C-

block auction, the FCC conducted extensive administra-

tive proceedings on the question and produced three or-

ders declaring that C-block bidders could not keep their

licenses without paying the full bid price for them. See

Restructuring Order Jj 2, 5; Reconsideration Order TJ

2, 10; Second Reconsideration Order 4 1. It sought in

this manner to adhere to the fundamental rationale of the

competitive scheme: Those qualified bidders who could

pay the most were those who should be awarded the li-

censes. See Restructuring Order ¥ 19; see also Second

Order 45. These rules and orders, which express the

FCC’s expert judgment as to the course that would best

promote congressional objectives and serve the public

interest, thus manifest substantive regulatory decisions

about the allocation of spectrum.

Despite the new statutory scheme for allocating

spectrum, the FCA draws no categorical distinctions

among the three methods of license allocation -- com-

parative hearing, lottery and auction. Each is presumed

to be a regulatory tool for ensuring that licenses are dis-

9 The district court below held that the avoidance remedy

requested by NextWave had “nothing to do with” the organi-

zation, execution, or implementation of the auctions.

NextWave Personal Communiéations, Inc. v. FCC (In re

NextWave Personal Communications, Inc.), No. 99 Civ.

— (CLB), slip op. at 5 (S.D.N.Y. July 27, 1999). See infra

at 36.

20a

tributed in the way that fulfils the goals of the FCA. See

47 U.S.C. § 309(a). And each license, on whatever basis

it is awarded, is not to “be construed to create any right,

beyond the terms, conditions, and periods of the li-

cense.” 47 U.S.C. § 301.

A. The FCC and the Courts

The Supreme Court has emphasized that the FCA’s

“terms, purposes, and history all indicate that Congress

formulated a unified and comprehensive regulatory sys-

tem.” United States v. Southwestern Cable Co., 302

U.S. 157, 168 (1968) (internal quotation marks and cita-

tion omitted). “Congress assigned to the Federal Com-

munications Commission ... exclusive authority to

grant licenses” under the Act. Metro Broadcasting, Inc.

v. FCC, 497 U.S. 547, 553 (1990), overruled on other

grounds, Adarand Constructors Inc. v. Pena, 515 U.S.

200 (1995). The FCC was “expected to serve as the sin-

gle Government agency with unified jurisdiction and

regulatory power over all forms of electrical communi-

cation, whether by telephone, telegraph, cable, or radio.”

Southwestern Cable Co., 392 U.S. at 168 (internal quo-

tation marks and footnotes omitted). In this case, we are

required to “enforce the spheres of authority which

Congress has given to the Commission and the courts,

respectively, through its scheme for the regulation of”

radio transmissions. Pottsville Broadcasting Co., 309

U.S. at 136-37.

For over fifty years the Supreme Court has recog-

nized that under the FCA the division of authority be-

tween these “spheres” requires that “no court can grant

an applicant an authorization which the Commission has

refused.” Scripps-Howard Radio, Inc. v. FCC, 316

U.S. 4, 14 (1942). Under the FCA, it is the FCC and not

the courts that “must be satisfied that the public interest

will be served by . .. the license.” FCC v. WOKO, Inc.,

329 U.S. 223, 229 (1946).

2la

The FCC’s exclusive jurisdiction extends not only to

the granting of licenses, but to the conditions that may

be placed on their use:

An FCC licensee takes its license subject

to the conditions imposed on its use.

These conditions may be contained in both

the Commission’s regulations and in the

license. Acceptance of a license constitutes

accession to all such conditions. A licen-

see may not accept only the benefits of the

license while rejecting the corresponding

obligations.

P & R Temmer v. FCC, 743 F.2d 918, 927 (D.C. Cir.

1984).

If the conditions to which a license is subject are not

met, the FCC may revoke the license. It is beyond the

jurisdiction of a court in a collateral proceeding to man-

date that a licensee be allowed to keep its license despite

its failure to meet the conditions to which the license is

subject.

When the FCC decides which entities are entitled to

licenses under rules and conditions it has

promulgated, it therefore exercises the full extent of its

regulatory capacity. Because jurisdiction over claims

brought against the FCC in its regulatory capacity lies

exclusively in the federal courts of appeals, see 28

U.S.C. § 2342; 47 U.S.C. § 402, the bankruptcy and dis-

trict courts lacked jurisdiction to decide the question of

whether NextWave had satisfied the regulatory condi-

tions placed by the FCC upon its retention of the Li-

censes.

B. The Rulings of the Bankruptcy and Dis-

trict Courts

It is against this background that the inability and

consequent failure of NextWave to pay for its C-block

Licenses must be considered. The FCC had not sold

22a

NextWave something that the FCC had owned; it had

used the willingness and ability of NextWave to pay

more than its competitors as the basis on which it de-

cided to grant the Licenses to NextWave. NextWave’s

inability to follow through on its financial undertakings

had more than financial implications. It indicated that

under the predictive mechanism created by Congress to

guide the FCC, NextWave was not the applicant most

likely to use the Licenses efficiently for the benefit of

the public in whose interest they were granted. It meant,

in regulatory terms, that NextWave was not entitled to

the Licenses.

NextWave urged the bankruptcy and district courts

to treat these proceedings as “a simple bankruptcy case.”

The courts apparently agreed. The bankruptcy court

found that “the issues before [it] .. . concern[ed] solely

the debtor-creditor relationship between the FCC and

[NextWave] .” NextWave V, 235 B.R. at 314. Accord-

ing to the district court, “[t]he claim ha[d] nothing to do

with the FCC’s ‘organization, execution, or implementa-

tion’ of the radio spectrum auction. Neither d[id] the

claim implicate the FCC’s power to regulate the issu-

ance or use of spectrum licenses.” NextWave, No. 99

Civ. 4439 (CLB), slip. op. at 5.

This approach was fundamentally mistaken. The

FCC’s auction rules promulgated under § 309(j) have

primarily a regulatory purpose: to ensure that spectrum

licenses end up in the hands of those most likely to fur-

ther congressionally defined objectives. The fact that

market forces are the technique used to achieve that

regulatory purpose does not turn the FCC into a mere

creditor, any more than it turns an FCC license won at

auction into a property estate in spectrum. Nothing

about putting spectrum licenses up for auction rendered

them anything other than licenses, and the sole responsi-

bility for the allocation of licenses lies with the FCC,

with appeal to the courts of appeals, not the bankruptcy

or district courts.

23a

By holding that for a price of $1.023 billion

NextWave would retain licenses for which it had bid

$4.74 billion, the bankruptcy and district courts impaired

the FCC’s method for selecting licensees by effectively

awarding the Licenses to an entity that the FCC deter-

mined was not entitled to them.!° In so doing they exer-

cised the FCC’s radio-licensing function. Cf National

Broadcasting Co., 319 U.S. at 224. “[Tjhe weighing of

policies under the ‘public interest’ standard is a task that

Congress has delegated to the Commission in the first

instance,” FCC v. WNCN Listeners Guild, 450 U.S. 582,

596 (1981) (internal quotation marks and citation omit- .

ted), with deferential judicial review reserved to the

courts of appeals. But even if the bankruptcy and dis-

trict courts were right in concluding that granting the Li-

censes at a small fraction of NextWave’s original suc-

cessful bid price best effectuated the FCA’s goals, see

NextWave III, No. 99 Civ. 4439 (CLB), slip. op. at 14;

NextWave IV.B, 235 B.R. at 311-12, they were utterly

without the power to order that NextWave be allowed to

retain them for that reason or on that basis. See Scripps-

Howard Radio, Inc., 316 U.S. at 14.

This is not to say that these courts lacked jurisdic-

tion over every aspect of the relationship between the

FCC and NextWave. To the extent that the financial

transactions between the two do not touch upon the

FCC’s regulatory authority, they are indeed like the ob-

10 The rules of construction included within § 309(j) rein-

force this understanding. They say, “Nothing ... in the use

of competitive bidding shall ... (C) diminish the authority

of the Commission under the other provisions of this chapter

to regulate or reclaim spectrum licenses.” 47 U.S.C. §

309(j)(6)(C). In other words, even when they are allocated

through the use of competitive bidding, spectrum licenses

remain just that, licenses subject to regulation and reclama-

tion by the FCC.

24a

ligations between ordinary debtors and creditors.

NextWave’s arguments that the FCC seeks to frustrate

the purposes of the bankruptcy laws are therefore mis-

placed. We are merely holding that NextWave may not

collaterally attack or impair in the bankruptcy courts the

license allocation scheme developed by the FCC.!!

As Justice Frankfurter noted nearly sixty years ago,

“(t]he Communications Act .. . expresses a desire on the

part of Congress to maintain, through appropriate ad-

ministrative control, a grip on the dynamic aspects of

radio transmission.” Pottsville Broadcasting Co., 309

U.S. at 138. In response to changing technological im-

peratives and policy preferences, Congress and the FCC

have chosen to manage the “dynamic aspects” of spec-

trum allocation in a new way, by employing market

forces in an attempt to ensure efficient and publicly

beneficial resource allocation. Despite subsequent revo-

lutions in technology, however, the observation of Jus-

tice Frankfurter still holds: In order for Congress’s pre-

scribed regulatory system to function properly in a dy-

namic environment, the FCC’s allocative decisions must

not be interfered with by other instrumentalities of the

federal government acting beyond their statutory author-

ity.

11 The bankruptcy court held: “The basic defect in the

FCC’s argument is that Congress did not confer upon the

FCC the power to determine unilaterally its own rights as a

creditor in competition with and to the detriment of other

creditors.” NextWave I, 235 B.R. at 270. That is surely true.

But as we have repeatedly stated, that analysis is misplaced if

it allows the bankruptcy court to adjudicate claims against

the FCC not as a creditor, but as an allocator of licenses.

Such was the case here. As for NextWave’s other creditors,

jurisdiction in the bankruptcy and district courts is not cre-

ated by any interest these creditors might have in NextWave

retaining but avoiding payment on the Licenses.

25a

Ii. Constructive Fraud

While we reverse the district court’s affirmance of

the bankruptcy court orders issued in the adversary pro-

ceeding, and hold that these courts lacked jurisdiction to

employ remedies that abrogate the FCC’s licensing au-

thority, we recognize that NextWave will remain a

debtor in bankruptcy. Ifthe Licenses are returned to the

FCC, the bankruptcy court may resolve resulting finan-

cial claims that the FCC has against NextWave as it

would the claims of any government agency seeking to

recover a regulatory penalty or an obligation on a debt.

In light of these possible further proceedings, there re-

mains for us the question of the nature of NextWave’s

obligation, which the bankruptcy court decided, see

NextWave IV.A, 235 B.R. at 287-91, and which may on

remand have substantial effect on the determination of

the FCC’s rights as creditor.!2 We hold, contrary to the

rulings by the bankruptcy and district courts, that

NextWave became obligated to the FCC for the full

amount of its winning bids at the close of the C-block

auction, and that the transaction in which the Licenses

were issued was therefore not constructively fraudulent.

Under the avoidance provisions of the Code, a trans-

fer or obligation is or is deemed to be a fraudulent con-

veyance -- and therefore avoidable -- if the debtor “re-

ceived less than a reasonably equivalent value in ex-

change for such transfer or obligation.” 11 U.S.C.

§§ 544, 548(a)(2)(A) (1993 & Supp. 1999).!3 It is un-

12 Because the consequences of constructive fraud are not

limited to 11 U.S.C. § 544, we believe appellate considera-

tion of this holding is necessary.

13 Both NextWave and the FCC concede that any choice-of-

law questions as to the fraudulent conveyance issue are obvi-

ated by the coincidence of § 548, on the one hand, and the

[Footnote continued on next page]

26a

contested that the question of reasonably equivalent

value is determined by the “value of the consideration

exchanged between the parties at the time of the convey-

ance or incurrence of debt which is challenged.”

NextWave IV.A, 235 B.R. at 290 (citing Jn re Best

Products Co., 168 B.R. 35, 54 (Bankr. $.D.N.Y. 1994))

(emphasis added).

The date on which the payment obligation arose is

therefore crucial to whether this obligation is avoidable.

If NextWave incurred the obligation at the close of the

auctions, then the value of the Licenses would by defini-

tion be $4.74 billion, since “the fair market values of the

C block licenses were equivalent to the bids accepted by

the FCC at the close of the auction and reauction.”

NextWave IV.A, 235 B.R. at 297 n9 (noting

NextWave’s concession of this point). And if the fair

market value was $4.74 billion, then there was no con-

structive fraud. On the other hand, if the obligation first

arose on or about the date on which the Licenses were

conditionally granted (following the fall-off in auction

prices at the D-, E- and F-block auctions), then the $4.74

billion bid exceeded the fair market value as measured

by the subsequent auction prices.

The bankruptcy court held that NextWave’s pay-

ment obligation did not arise until the conditional grant

of the Licenses on January 3, 1997. The court placed

great weight on the idea that an obligation evidenced by

a writing arises when the wniting is delivered:

Generally an obligation is incurred when a

debtor becomes legally obligated to pay.

In re Emerald Oil Co., 695 F.2d 833, 837

(Sth Cir. 1983); Barash v. Public Finance

[Footnote continued from previous page]

applicable New York, California, and Washington, DC laws,

on the other. See NextWave IV.A, 235 B.R. at 289.

27a

Corp., 658 F.2d 504, 511 (7th Cir. 1981);

see also In re G. Survivor Corp., 217 B.R.

433, 440 (Bankr. S.D.N.Y. 1998). While

the Bankruptcy Code is silent on the ques-

tion of when a debt or obligation is “in-

curred,” courts have not questioned that an

“obligation” to pay principal indebtedness

under a promissory note is “‘incurred’’ on

the date the note is executed and delivered.

E.g., In re Iowa Premium Service., 695

F.2d 1109, 1111-12 (8th Cir. 1982); Jn re

Smith-Douglass Inc., 842 F.2d 729, 730

(4th Cir. 1988); Jn re Pippin, 46 B.R. 281,

283-84 (Bankr. W.D. La. 1984) (holding

that, for preference purposes, debtor be-

comes legally obligated to pay under in-

stallment payment contract when contract

is executed). The California [Uniform

Fraudulent Transfer Act] provides that

“{ajn obligation is incurred ... if evi-

denced by a writing, when the writing exe-

cuted by the obligor is delivered to, or for

the benefit of, the obligee.” Cal. Civ.

Code §3439.06(e) (2) [(1997)].

NextWave IV.A, 235 B.R. at 289 (ellipsis and second set

of brackets in original).

The obligation to pay the Notes attached upon their

delivery, as the writing rule confirms, but that observa-

tion begs the crucial question: When did NextWave

take on the obligation to pay $4.74 billion for what it bid

at auction? And that question suggests another: What

did NextWave bid $4.74 billion to get?

We conclude that NextWave bid $4.74 billion for

the right -- excluding other bidders -- to be the qualified

~ licensee of the Licenses, and became obligated to assure

payment of $4.74 billion for the Licenses either by cash

and credit on delivery or by submitting to liability for

28a

the shortfall if NextWave -- which knew the rules for

qualification -- failed to qualify.

Our ruling is based on the FCC’s interpretation of its

own regulations, to which courts owe deference, but to

which the courts below refused deference on grounds we

conclude are invalid. The FCC’s interpretation is sup-

ported, in turn, by the auction law principle that an obli-

gation attaches when the seller no longer can reject the

bidder’s offer as a matter of discretion.!4

14 Because we believe there are adequate other grounds for

reversing the courts below in this case, and because we think

the FCC has provided us with a rational interpretation of its

regulations that warrants our deference, we do not reach the

question of whether federal common law governs auctions

conducted pursuant to the FCA in the absence of satisfactory

statutory or regulatory guidance. If we were to apply federal

common law, it would not be “federal common law in the

strictest sense, i.e., a rule of decision that amounts, not sim-

ply to an interpretation of a federal statute, but, rather, to the

judicial ‘creation’ of a special federal rule of decision,” Bur-

lington Indus., Inc. v. Ellerth, 118 S. Ct. 2257, 2265 (1998)

(internal citations and ellipses omitted) (citing Atherton v.

FDIC, 519 U.S. 213, 218 (1997)), and federal courts often

employ federal common law “principles” in interpreting fed-

eral statutes. See, e.g., Burlington at 2269-70 (agency);

United States v. Bestfoods, 118 S. Ct. 1876, 1886 n.9 (1998)

(discussing veil piercing under CERCLA). In the present

case, however, we content ourselves with reviewing and re-

jecting the conclusions that NextWave claims to draw from

the principles of auction law. We refrain from engaging in

the kind of “willful policymaking, pure and simple,” Burling-

ton at 2273 (Thomas, J., dissenting), that might result from

drawing intuitively on purported common law “principles.”

See Id. at 2273 (decrying use of “agency principles” drawn

entirely from Restatement (Second) of Agency).

as FA eG UMD ENS TPT

29a

A. FCC Regulations

The FCC’s rules establish the close of the auction as

the time of obligation. The FCC’s formal interpretation

of its own regulations, albeit issued after the auction,

provides that the binding obligation to pay the full bid

price attaches to the winning bidder “upon acceptance of

the high bid.” Jn re Applications for Assignment of

Broadband Personal Communications Services Li-

censes, FCC 98-301 (Dec. 23, 1998), 1998 WL 889489

(F.C.C.) ¥ 1. Other FCC publications clarify that the

“acceptance of the high bid” occurs at the close of the

auction: “Under the Commission’s rules, [the winning

bidder] became obligated for its winning bid amounts

when the auction closed.” Public Notice, Auction of C,

D, E, and F Block Broadband PCS Licenses, DA-98-

2604 (Dec. 23, 1998), 1998 WL 892962 (F.C.C.) at 4.

The FCC’s interpretation enjoys a presumption of cor-

rectness: “We must give substantial deference to an

agency’s interpretation of its own regulations.” Thomas

Jefferson Univ v. Shalala, 512 U.S. 504, 512 (1994); ac-

cord New York v. Shalala, 119 F.3d 175, 182 (2d Cir.

1997). It is not this Court’s task to choose which among

several competing interpretations best serves the stated

regulatory purpose; “the agency’s interpretation must be

given controlling weight unless it is plainly erroneous or

inconsistent with the regulation.” Thomas Jefferson

Univ., 512 U.S. at 512 (internal quotation marks omit-

ted); accord New York v. Shalaia, 119 F.3d at 182. This

Court defers to the agency’s interpretation unless a dif-

ferent reading is compelled by the plain meaning of the

regulation or some other indicia of the agency’s intent at

the time of promulgation. See Thomas Jefferson Univ.,

512 U.S. at 512. Deference is especially appropriate

where “the regulation concerns ‘a complex and highly

technical regulatory program.’”” Jd. (quoting Pauley v.

BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991)).

In this case, the FCC interprets its regulation to

mean that NextWave’s obligation attached upon the

30a

close of the auction, and nothing justifies a departure

from that interpretation. At the close of the auction

NextWave became obligated, if qualified, to pay the

$4.74 billion bid price or, if unqualified, to pay a pre-

scribed penalty. The FCC’s penalty rules provide that

default between the close of the auction and the grant of

the Licenses exposes the winning bidder to liability for

the amount it bid less the winning bid upon re-auction of

the Licenses. See 47 C.F.R. § 1.2104(g)(1)-(2). This

“penalty” is the functional analog of expectation dam-

ages; that is, the FCC must mitigate its harm by a re-

auction, but the original winning bidder is liable for any

shortfall between the subsequent winning bid and its

own. So although labeled a “penalty,” this remedy is

fully consistent with the notion that the winning bidder

becomes liable for full price of the winning bid upon the

close of the auction.

The bankruptcy court, however, held that it owed no

deference to the FCC’s regulations or the Commission’s

interpretation thereof because (a) the FCC appears in

bankruptcy court as a creditor rather than as a regulator,

and so is due no more deference than other creditor; and

(b) the deference ordinarily afforded the FCC’s reading

of its rules and the statute it administers is inappropriate

(or at least not equally compelled) in this case by reason

of the self-serving nature of the FCC’s post hoc interpre-

tation.

(a) The FCC’s Creditor Status. The bankruptcy

court treated the FCC as a creditor like any other, and

thus refused to allow the FCC to construe its contractual

rights (after the fact) in a way that would be binding in

the bankruptcy proceeding:

[T]he FCC’s own regulations are entitled

to no more nor less weight in the context

of bankruptcy proceedings than the con-

tractual notes, mortgages and similar docu-

ments required by other creditors in

commercial transactions. Stated simply,

raerrenrsns crn .

PRL EME

3la

the FCC’s regulations, to the extent that

they establish and govern the rights and

obligations of the FCC and the licensee in

their capacities as creditor and debtor, are

subject to modification under the Bank-

ruptcy Code, just like the contractual

rights and obligations of an ordinary credi-

tor vis-a-vis its debtor.

NextWave V, 235 B.R. at 317 (emphasis added). This

reasoning insufficiently accommodates the dual role that

the FCC plays in this proceeding. See supra Part II. In

granting licenses by auction, the FCC acts as creditor

and regulator both. We need not decide what happens at

each point of overlap, but the regulatory function is not

ended by the bankruptcy of a licensee or license claim-

ant, and as the function persists it must perforce be car-

ried out.

True, the FCC’s regulatory int tion in this

case favors the interests of the federal fisc over those of

other NextWave creditors: It prevents the bankruptcy

court from extinguishing approximately $3.7 billion of

debt owed for the Licenses. It does not follow, however,

that the FCC’s regulatory interpretation is proffered by

the FCC as creditor only and not as regulator in whole or

part. The FCC’s interpretation, which was rejected be-

low as self-serving because it advances the FCC’s inter-

est as creditor, also advances important regulatory pur-

poses See supra Part II; Second Order § 5; Restructuring

Order § 19.

The bankruptcy court’s denial of deference to the

FCC was premised on the understanding that the FCC

was acting solely as a creditor in this action. Because

the FCC was acting in part as a regulator as well as a

creditor, we have no occasion to decide here whether the

bankruptcy courts owe deference to the regulatory inter-

pretations of agencies acting strictly as creditors. It is

possible that in future proceedings the FCC may stand in

a strict debtor/creditor relationship to NextWave. But

32a

since we do not know what steps the FCC will take vis-

a-vis the obligations owed to it by NextWave, any issues

created by the FCC’s attempts to collect on those obliga-

tions are not yet ripe.!5 Cf Mountain Solutions, Ltd. v.

FCC, 197 F.3d 512 (D.C. Cir. 1999) (holding that a re-

quest for injunctive relief, made by a bidder at a spec-

trum auction, was not ripe when the actual order impos-

ing default penalties had not yet issued). We limit our-

selves here to finding that NextWave’s obligations were

incurred at the close of auction and that the transaction

in which they were incurred was therefore not construc-

tively fraudulent. Where the regulatory agency acts as

both regulator and creditor, we owe deference to its in-

terpretation of its regulations.

(b) The FCC’s Self-Interest. The courts below em-

phasized and relied on the self-serving nature of the

FCC’s interpretation and a perceived lack of connection

between its interpretation and the original legislative

purpose of the auction regime. We have already noted

that the FCC’s interpretation, though financially advan-

tageous to the federal government, also furthers regula-

tory goals. The financial benefits of the FCC’s post hoc

interpretation do not extinguish the courts’ duty to give

deference.

15 This appeal stems from an adversary proceeding initiated

preemptively by NextWave. Because of the ongoing litiga-

tion, the FCC has not yet sought to take any action vis-a-vis

the Licenses. While it would probably be fair to assume that

the FCC will seek to revoke the Licenses and collect on its

debts, we cannot presume to know in advance the course that

the agency will ultimately follow. We do not know, for ex-

ample, the size of the penalty the FCC may seek to recover,

or even whether it will seek to recover its regulatory. penalty,

recover on the Notes, or recover on both. It is possible that if

the FCC chooses to pursue some of these options -- say, col-

lection on the Notes it may find itself acting as a creditor.

aa eel

= . Se os

Siete RNS. eT SET

= ae Dame

33a

The level of judicial deference depends in part on

whether an agency interpretation is consistent or in con-

flict with the goals of the regulation as stated when it

was adopted. See Thomas Jefferson Univ., 512 U.S. at

512. As counsel for NextWave agreed at oral argument

before us, one congressional goal in authorizing the FCC

to conduct auctions was to achieve fair and efficient al-

location of spectrum licenses. See Committee Report at

253, reprinted in 1993 U.S.C.C.A.N. at 580; Second Or-

der § 73. The auction mechanism can do so only if the

bids constitute a reliable index of the bidders’ commit-

ments to exploit and make the most of the license at is-

sue. And this goal is served only if the high bid entails

the obligation to make good the amount bid, either by a

qualified bidder’s payment on delivery or by payment of

any shortfall (upon re-auction) by a bidder who fails to

qualify. If the transaction can be adjusted in bankruptcy

proceedings so that the high bidder takes the license

without paying the amount of the high bid, the auction

as a mechanism for determining valuation is impaired.

The FCC’s insistence on full payment is consistent with

the goals of the auction.

B. Auction Law

The parties and the bankruptcy court make several

arguments based on the principles of auction law. We

do not think it is necessary to rely on or to appear to cre-

ate a federal common law of auctions in order to resolve

this appeal. We think that the principles of auction law

are useful nonetheless, at least insofar as they confirm

and reinforce the rationality of the FCC’s interpretation

of its regulations.

The bankruptcy court held that NextWave gained

nothing at the close of the auction except the right to ap-

ply for the Licenses, relying upon the following collo-

quy with counsel for the FCC:

THE COURT: Wait a second. You’re

asking for words, namely, “reasonably

34a

equivalent value” and that raises a ques-

tion or value for what? And equivalent to

what?

[FCC]: To what they got.

THE COURT: What did they get?

[FCC]: What they got was the right to ap-

ply for these licenses that were essential to

their business. And without those licenses,

they would have no business.

NextWave II, 235 B.R. at 274. In summary of the

court’s reasoning below (which summary may not do

the analysis full justice) : Delivery of the Licenses, not-

withstanding the auction and NextWave’s high bid, re-

mained contingent upon the FCC’s determination some-

time later that NextWave’s application should be

granted; the auction was therefore of the kind conducted

with a reserve; like such reserve auctions, the high bid-

der’s obligation to pay did not arise when the hammer

fell; the reserve in this case was not lifted until at least

such time as the FCC decided to deliver the Licenses;

and NextWave’s obligation to pay the ar unt of the

high bid therefore did not arise until the date on which

the Licenses were delivered and the Notes delivered in

exchange. We disagree. The close of the auction estab-

lished the FCC’s obligation to grant NextWave the Li-

censes if the company fulfilled statutory eligibility re-

quirements, and NextWave became liable at that time

for full payment on the Licenses at the stated price.

As in contract law more generally, a sale by auction

is valid only upon offer and acceptance. See Blossom v.

Railroad Co., 70 U.S. (3 Wall) 196, 206 (1865); 7 Am.

Jur. 2d Auctions and Auctioneering § 20 (1997). Asa

baseline rule, the close of the auction -- traditionally the

drop of the hammer -- signals acceptance of an offer and

forms an enforceable contract. See 7 Am. Jur. 2d Auc-

tions and Auctioneering § 34; 7A C.J.S. Auctions and

Auctioneers §§ 8, 12 (1980). A bidder has a right to

35a

withdraw the bid at any time before its acceptance. See

Blossom, 70 U.S. at 206; 7 Am. Jur. 2d Auctions and

Auctioneering § 33; 7A C.J.S. Auctions and Auctioneers

§ 13. The timing of acceptance, and therefore of the

creation of a contractual obligation, is different if the

auction sale is conducted “with reserve”: “Where the

seller reserves the right to refuse to accept any bid made,

a binding sale is not consummated between the seller

and the bidder until the seller accepts the bid.” 7 Am.

Jur. 2d Auctions and Auctioneering § 20; see also Blos-

som, 70 U.S. at 206; 7A C.J.S. Auctions and Auctioneers

§ 11. :

If by virtue of the required statutory approval, the

FCC’s spectrum-allocation process became an “auction

with reserve,” then (under the principles of auction law)

NextWave’s obligation to pay would not have arisen un-

til the FCC approved the grant of the Licenses to

NextWave, after the drop in market value reflected in

(or precipitated by) the auction of the D-, E- and F-

blocks. The finding of constructive fraud rests on that

analysis. On the other hand, if the obligation to pay or

make good the winning bid arose when the winning bid

was announced, before the drop in market value, then

the obligation NextWave seeks to avoid cannot be char-

acterized as a constructive fraud.

We conclude that the obligations NextWave seeks to

avoid arose no later than the announcement of the win-

ning bid, even though the resulting contract had more

terms than would be common at the auction of a saleable

thing by a private seller. By conducting the auction, the

FCC offered to deliver the Licenses to the qualified high

bidder. By bidding, NextWave represented that it was

qualified to receive the Licenses. By making the high

bid, NextWave (a) assumed an obligation to pay a

down-payment promptly, (b) assumed an obligation to

pay in the future the amount of its bid upon receipt of

the Licenses and (c) assumed the risk that it might prove

unqualified, by binding itself in that event to pay the

36a

amount of any shortfall in a re-auction of the same Li-

censes.

The requisite statutory approval by the FCC was not

a “reserve” that (until lifted) prevented any enforceable

obligation on the part of the high bidder. Auctions with

reserve stand or fall as a matter of the seller’s discretion,

usually on the basis of the pecuniary sufficiency of the

bids. See 7 Am. Jur. 2d Auctions and Auctioneering §

23 (defining the phrase “without reserve” in terms of the

seller’s right to “withdraw[] the property from sale if he

is not pleased with the bids”); see also Drew v. John

Deere Co., 241 N.Y.S.2d 267, 269-70 (App. Div. 1963);

7 Am. Jur. 2d Auctions and Auctioneering § 21 (“[{I]n an

auction with a reserve, the auctioneer may withdraw the

items for auction at any time until he announces comple-

tion of the sale.” (emphasis added))

The nature of the statutory approval requirement in

this case is neither discretionary nor economic. The

FCC’s act of naming NextWave the winning bidder ob-

ligated the FCC to deliver the Licenses to NextWave, at

the price determined by NextWave’s winning bid, if

NextWave fit certain noneconomic qualifying criteria.

See In the Matter of the Implementation of Section

309(j) of the Communications Act--Competitive Bidding,

Fifth Report and Order, FCC 94-178, 9 F.C.C.R. 5532

(July 15, 1994), 1994 WL 372170 (F.C.C.) ¥ 81 (“If the

Commission denies all petitions to deny, and is other-

wise satisfied that the applicant is qualified, the li-

cense(s) will be granted to the auction winner.”); 47

C.F.R. § 1.2108(d) (1) (“If the Commission determines

that . . . an applicant is qualified . . . it will grant the ap-

plication.”). NextWave cites Mobile Communications

Commission v. FCC, 77 F.3d 1399 (D.C. Cir. 1995), as

demonstrating that the FCC has no obligation to grant

the license at the bid-upon price. MCC v. FCC, how-

ever, dealt not with the FCC’s decision that a bid price

was insufficient but with the FCC’s determination that

the licensee was ineligible for a “pioneer’s preference”

37a

and thus had to pay for its license. See id. at 1408-09.

The case is inapposite.

NextWave knew about the statutory criteria for ap-

proval before the bidding began. See 47 C.F.R.

§ 310(b)(4) (1991); 47 C.F.R. §§ 24.709, 24.712, 24.720

(1996). In the event, the only obstacle to closing en-

countered by NextWave was its own noncompliance

with the foreign ownership requirements. NextWave’s

willingness to bid notwithstanding the undisputed fact

that noncompliance would prevent delivery of the Li-

censes and compel NextWave to insure the government

against a lower high bid at re-auction demonstrates that

NextWave assumed the risk of its own non-compliance.

True, there appears to be an element of discretion in

the FCC’s decision to grant the Licenses conditionally,

pending NextWave’s compliance with statutory re-

quirements. However, that conditional grant was tempo-

rary, see In re Applications of NextWave Personal

Communications, Inc. for various C-Block broadband

PCS Licenses, DA 97-328 (Feb. 14, 1997), at 2, and the

FCC had no power to waive the statutory requirements

permanently. Moreover, it was a temporary discretion-

ary approval; the FCC had no authority to reject

NextWave’s bid as a matter of discretion.

Thus the FCC was obligated to deliver the Licenses

at the agreed-upon price if NextWave could demonstrate

that it met certain statutory and regulatory eligibility re-

quirements, and NextWave assumed the risk of its fail-

ure to do so. The FCC was bound, and so was

NextWave. After acceptance of the offer, “as a rule, the

seller has no right to accept a higher bid, nor may the

buyer withdraw his bid.” 7 Am. Jur. 2d Auctions and

ae § 20 (1997); see also Blossom, 70 U.S. at

206.

The FCC’s dual role in the licensing process -- as

offeror in the auction and as regulator thereafter -- con-

fers on the FCC prerogatives that are not enjoyed by the

38a

ordinary seller. The FCC thus retains the authority to

reject a high bid for regulatory purposes. But

NextWave knew, at the time of the auction, that the

winning bidder would look to the FCC both as creditor

and as regulator. If NextWave objected to the condi-

tions imposed by the FCC or to the FCC’s dual role in

the transaction, NextWave could have refrained from

participating in the auction.

The point is well illustrated in United States v.

Weisbrod, 202 F.2d 629, 633 (7th Cir. 1953). In a sur-

plus auction conducted near the end of World War II,

the federal government reserved a unilateral right to

withdraw from sale certain chemicals and drugs, even

after accepting the winning bid. See id. at 630. When

the government sued the winning bidder for default, the

bidder defended on the ground that the contract was de-

fective for failure of mutuality. See id. at 631. The Sev-

enth Circuit affirmed the finding of liability for breach,

see id. at 633, on the ground that a condition made

known to the buyer --even the unilateral nght of the

seller to withdraw from the contract -- did not abrogate

the buyer’s obligation to perform. See id. at 632-33. “If

‘one does not wish to bid ... with the conditions at-

tached, his alternative is to make no bid.” Jd. at 633, on

the ground that a condition made known to the buyer --

even the unilateral right of the seller to withdraw from

the contract — did not abrogate the buyer’s obligation to

perform. See id. at 623-33. “If one does not wish to bid

... With the conditions attached, his alternative is to

make no bid.” Jd. at 633.16

16 Cases cited by NextWave to support the contrary argu-

ment, which concern auctions with reserve, are not on point.

See, e.g., Erie Coal & Coke Corp. v. United States, 266 U.S.

2 18, Sear (1925); Ferry v. Udall, 336 F.2d 706, 709 (9th

ir. 1 ,

39a

CONCLUSION

We hold that the bankruptcy and district courts had

no power to interfere with the FCC’s system for allocat-

ing spectrum licenses and that, in any event, the courts

erred in determining that NextWave’s payment obliga-

tion was constructively fraudulent. We therefore reverse

the judgment of the district court affirming the five or-

ders of the bankruptcy court and remand for further pro-

ceedings consistent with this opinion, if any are neces-

sary. The mandate shall issue forthwith.

40a

In re NEXTWAVE PERSONAL COMMUNICA-

TIONS, INC. et al., Debtors.

NextWave Personal Communications, Inc., Plaintiff-

Federal Communications Commission,

Defendant-Appellant.

99 Civ. 4439 (CLB), 98 B 21529 (ASH)

United States District Court,

S.D. New York.

July 27, 1999

Deborah Schrier-Rape, Andrews & Kurth, Dallas, TX,

for NextWave Personal Communications, Inc.

Daniel S. Alter, Mary Jo White, New York City, for

Federal Communications Commission.

MEMORANDUM & ORDER

BRIEANT, District Judge.

This appeal challenges five decisions and orders of

the Bankruptcy Court, issued in a Chapter 11 Proceeding

by the Honorable Adlai S. Hardin, United States Bank-

ruptcy Judge, dated December 7, 1998, February 16,

1999, April 2, 1999, May 12, 1999 as supplemented on

June 22, 1999, and June 16, 1999, rendered in the Ad-

versary Proceeding of NextWave Personal Communica-

tions, Inc. (“NextWave”) against the Federal Communi-

cations Commission (the “FCC”) (the “Adversary Pro-

ceeding”). On June 22, 1999, Defendant-Appellant FCC

filed its brief; on July 2, 1999, Plaintiff-Appellee

NextWave filed its brief; and on July 8, 1999, the FCC

filed its reply brief. On July 15, 1999, this Court heard

oral argument on the appeal and reserved decision.

Thereafter, on July 20, 1999, NextWave submitted a let-

ter brief addressing certain concerns raised by the Court

at oral argument.

4la

Familiarity of the reader with the decisions of Judge

Hardin is assumed.

In an appeal of a Bankruptcy Court’s decision and

order, this Court reviews findings of fact for clear error,

see In re Artha Management, Inc., 91 F.3d 326, 328 (2d

Cir. 1996), and conclusions of law de novo, see In re

Maxwell Newspapers, Inc., 981 F.2d 85, 89 (2d Cir.

1992).

FACTUAL BACKGROUND

The Facts relevant to this appeal are not disputed

significantly. In 1993, after investigation and discus-

sion, the House Committee on Energy and Commerce

(the “Committee”), concluded

that a carefully designed system to obtain

competitive bids from competing qualified

applicants [for electromagnetic spectrum

licenses] can speed delivery of services,

promote efficient and intensive use of the

electromagnetic spectrum, prevent unjust

enrichment, and produce revenues to com-

pensate the public for the use of public

airwaves.

H.R. Rep. No. 103-111 (1993), reprinted in 1993

U.S.C.C.A.N. 378, 580. In response, Congress passed

the 1993 amendments to the Federal Communications

Act (the “FCA”), which added section 309(j). See 47

U.S.C. § 309(j). Section 309(j) granted the FCC the

power to conduct competitive bidding auctions to sell

the right to apply for “blocks” of airspace or radiobands.

As part of the program, the FCC was to designate certain

blocks for auction to small, emerging businesses and to

a flexible, deferred er yment plans to such small

inesses. See 47 US. § 309()(3\B) and (XD).

Pursuant to Congress’ mandate, the FCC created a

petitive bidding auction system and designated the “ “C

Block” for auction to small businesses providing Per-

sonal Communication Services (“PCS”), a new form of

42a

wireless communication technology. Maximizing reve-

nue was proscribed explicitly as an objective of such

system.

On May 6 and July 16, 1996, the FCC ran auctions

for C Block licenses at which NextWave won the right

to apply for sixty-three C Block licenses by bidding $4.7

billion. NNextWave put down the required deposit of

$474 million (10% of the winning bid) and proposed a

payment plan at below-market interest rates for the re-

maining $4.26 billion. NextWave submitted applica-

tions for the licenses for review and approval by the

FCC. On January 3, 1997, the FCC approved

NextWave’s applications and soon thereafter sent to

NextWave a sefies of promissory notes for a total of

$4.26 billion, dated January 3, 1997. NextWave exe-

cuted the notes ori February 19, 1997.

Before approving the C Block licenses for

NextWave, the FCC conducted auctions for “D, E & F

Block” licenses, resulting in much lower bids for the

rights to apply for the same or similar licenses. As a

consequence of the gross disparity between the bids on

the C Block licenses and on the D, E and F Block li-

censes, 90% of the winning bidders from the C Block

auction were unable to obtain financing for their pay-

ment plans. The FCC thereafter promulgated voluntar-

ily two restructuring orders (the “Restructuring Orders”)

that offered the C Block license-holders four options to

restructure their debt. NextWave informed the FCC that

the four options were not commercially viable and on

May 8, 1998, requested an alternative restructuring. The

FCC refused and NextWave appealed that decision to

the Circuit Court of A: s of the District of Columbia

and requested a stay of the June 8, 1998 deadline to elect

one of the four options. The Court of Appeals denied

the request for a stay.

On June 8, 1998, NextWave, unable to finance its

enormous debt to the FCC and severely undercapital-

a Sh ats Bal Cat ei a A ea ce

A014 ese NORE ERS Rodd RGR POURRA ISAS AB OSE SN AORNTTARSAORN th eAARRDT ty

43a

ized, declared Chapter 11 Bankruptcy and filed the Ad-

versary Proceeding that is the subject of this appeal.

DISCUSSION

December 7, 1998 Decision Granting in Part and

Denying in Part the FCC’s Motion to Dismiss

The First Amended Complaint of NextWave con-

tained two claims, the first for constructive fraudulent

conveyance subject to avoidance under 11 U.S.C. § 544

and the second for equitable subordination based on the

FCC’s “inequitable, unconscionable and unfair conduct”

in auctioning other licenses before applying all of the C

Block licenses. The Bankruptcy Court dismissed

NextWave’s second claim for lack of subject matter ju-

risdiction and NextWAve has not appealed. Thus, dis-

missal of that claim is not under review.

The Bankruptcy Court denied the FCC’s motion to

dismiss NextWave’s claim for constructive fraudulent

conveyance. The FCC asserted (1) that the Bankruptcy

Court and District Court lack subject matter jurisdiction

over NextWave’s claim because jurisdiction over claims

brought against the FCC in its regulatory capacity lies

exclusively in the Circuit Courts of Appeals, 28 U.S.C.

§ 2342; 47 U.S.C. § 402; and (2) that the FCA preempts

state fraudulent conveyance claims. The Bankruptcy

Court held that for purposes of the fraudulent convey-

ance claim, the FCC was acting in its capacity as credi-

tor rather than as regulator. As to the preemption claim,

the Bankruptcy Court concluded that nothing in the FCA

conflicts with a fraudulent conveyance claim or mani-

fests an intent to legislate with respect to debtor-creditor

relations or to exclude licensees from access to the

Bankruptcy Court.

The Bankruptcy Court reasoned, and this Court

agrees, that the fraudulent conveyance claim does not

seek to litigate any issue with respect to the regulatory

power granted the FCC by Congress. The claim has

nothing to do with the FCC’s “organization, execution,

doa

or implementation” of the radio spectrum auction. Nei-

ther does the claim implicate the FCC’s power to regu-

late the issuance or use of spectrum licenses. The claim

seeks the equitable remedy of avoidance available under

11 U.S.C. § 544 for the benefit of other creditors and the

debtor, and implicates regulations and orders relevant to

the FCC only in its role as creditor.

Although Congress has granted the FCC the regula-

tory power to control the issuance and use of these li-

censes, it did not grant regulatory power to the FCC to

make rules or orders with respect to its own status as a

creditor vis-a-vis its debtors or other creditors of its

debtors. The FCA specifically directs that the mandate

to the FCC is not to collect revenue, and as the FCC

cites in its brief, section 309(j) “alters only the licensing

process, and has no effect on the requirements, obliga-

tions or privileges of license holders.” 1993

U.S.C.C.A.N. at 585. The FCC argues that its powers to

direct a debtor to pay the full amount of its debt, regard-

less of whether the debtor is in bankruptcy, derives from

other sections of the FCA. Section 309(j) states, “Noth-

ing in this subjection, or in the use of competitive bid-

ding, shall diminish the authority of the [FCC] under the

other provisions of this chapter to regulate or reclaim

spectrum licenses.” 47 U.S.C. § 309(j)(6)(C). But the

FCA does not provide for the FCC’s current method of

“reclamation” wherein the FCC is attempting “to dictate

its own rights as a creditor and thereby confound the

rights of other creditors and the debtor established by

Congress under the bankruptcy laws.” (December 7,

1998 Bankruptcy Decision & Order).

The regulations outlining the steps to be taken by

the FCC in the event of a default in payment of the in-

stallment notes are provisions of a contract between a

creditor and debtor. As such, they are subject to revi-

sion and adjustment pursuant to the Bankruptcy Code,

just as any similar debt. In any event, NextWave did not

45a

default, those steps were never taken, and no penalty

was ever assessed.

The Restructuring Orders were the voluntary offers

of a creditor to protect the solvency of its debtor in order

to assure payment. Not only were these orders promul-

gated by the FCC in its capacity as a creditor, but also

NextWave is not challenging the propriety of those or-

ders, which provide relief to those who find it commer-

cially viable and desire to take the benefit of such or-

ders. NextWave is challenging the right of the FCC as a

creditor of a bankrupt entity to recover on a fraudulently

incurred obligation. As the Supreme Court stated in

United States v. Kimbell Foods, Inc., 440 U.S. 715, 99

S. Ct. 1448, 59 L. Ed. 2d 711 (1979),

When the United States acts as a lender or

guarantor, it does so voluntarily, with de-

tailed knowledge of the borrower’s finan-

cial status. The agencies evaluate the risks

associated with each loan, examine the in-

terests of other creditors, chose the secu-

rity believed necessary to assure payment,

and set the terms of every agreement... .

The Government therefore is in substan-

tially the same position as private lenders,

and the special status it seeks is unneces-

sary to safeguard the public fisc. More-

over, Congress’ admonitions to extend

loans judicially supports the view that it

did not intend to confer special privileges

a that enter into the commercial

Id. at 736-37, 99 S. Ct. 1448. The regulations and or-

ders noted above were the actions of a creditor who

happens to be a federal agency. As a creditor and as a

federal agency, the FCC is subject to the rage ad

Code. See 11 U.S.C. § 106(a) (providing that fe

agencies are subject to § 544 claims). Congress could

46a

have exempted but did not exempt the FCC from the

Bankruptcy Code.

The Bankruptcy Code confers upon the district

courts and bankruptcy courts exclusive jurisdiction to

administer the Bankruptcy Code and Rules and to re-

solve claims, adversary proceedings and contested mat-

ters arising under the Code. Specifically, 28 U.S.C. §

157(b)(2)(H) grants the Bankruptcy Court jurisdiction to

determine “proceedings to determine, avoid, or recover

fraudulent conveyances.” The Bankruptcy Court there-

fore held that the constructive fraudulent conveyance

dispute tendered by the Adversary Proceeding was

within the subject matter jurisdiction of the Bankruptcy

Court, and this Court agrees.

This Court also agrees that the FCA does not pre-

empt the Bankruptcy Code or state fraudulent convey-

ance law. As this Court has already stated, Congress

must expressly exempt federal agencies from application

of the Bankruptcy Code and Congress has not exempted

the FCC. In addition, the FCA makes absolutely no at-

tempt to regulate debtor-creditor relations.

Section 544 of the neg Code provides that

the court should use icable law” in determining

whether a constructive Foden conveyance has oc-

curred. Applicable law is generally state law, unless

state law is preempted by federal law or state law is

found to be inappropriate because of the involvement of

the federal government as creditor (See infra). With re-

gard to preemption, the FCA provides:

State Preemption. (A) Notwithstanding

sections 152(b) and 221(b) of this title, no

State or local government shall have any

authority to regulate the entry of or the

rates charged by any commercial mobile

service or any private mobile service, ex-

cept that this paragraph shall not prohibit a

47a

State from regulating the other terms and

conditions of commercial mobile services.

47 U.S.C. § 332(c)(3). This provision does not explic-

itly preempt state fraudulent conveyance law. More-

over, state fraudulent conveyance law does not actuall

conflict with the FCA. It may conflict with self-

interested regulations promulgated by the FCC in its ca-

pacity as a creditor, but those regulations were not

promulgated — to the FCA and are not about

“frequency allocation, over which federal control is

clearly exclusive.” Head v. New Mexico Board of Ex-

aminers, 374 U.S. 424, 430 n.6, 83 S.Ct. 1759, 10

L. Ed. 2d 983 (1963).

February 16, 1999 Decision Determining the “Effective

Date”

The FCC brought a motion for summary judgment

to determine the “effective date” for purposes of

§ 544(b) of NextWave’s $4.74 billion obligations. Un-

der § 544(b), the “effective date” is the date that the “ob-

ligation [was] incurred.” §544(b). The Bankruptcy

Court determined that the effective date was at the earli-

est January 3, 1997, which is the date the FCC approved

NextWave’s application for the sixty-three C Block li-

censes and the date of the promissory notes. The FCC

argues, however, that the effective date is the date

NextWave won the bids at auction on May 8 and

July 23, 1996.

The obligation sought to be avoided is not any of the

obligations incurred when the auction ended, but rather

the obligation to pay the FCC the winning bid amount

for the sixty-three licenses, which arose at the time the

licenses were issued or the notes were executed. Ac-

cording to the FCC regulations, the winning bidder must

apply for the license, which may or may not be granted

because the public and other aspirants have the right to

oppose the grant. Before ig wag, of the application

and issuing of the licenses, is no property to be

48a

valued. If the bidder is disqualified or defaults in con-

nection with the application, the FCC may assess a pen-

alty in the amount of the difference between the price

ultimately received on resale and the original bidder’s

bid. Thus, the obligations incurred at auction are the ob-

ligations to pay any penalties assessed by the FCC. No

penalties were assessed, so that obligation was never in-

curred. The obligation to pay the total winning bid price

is not incurred until the application is processed and

granted, and the licenses are thereby transferred to the

bidder. Based on this reasoning, the findings of fact by

the Bankruptcy Judge that the obligation was not in-

curred until administrative approval or grant of the li-

censes, here no earlier than January 3, 1997, is at the

very least not clearly erroneous.

April 2, 1999 Oral Decision Denying Dismissal

The FCC moved for judgment on the pleadings for

failure to state a claim under federal common law as set

out by the Ninth Circuit Court of Appeals in Kupetz v.

Wolf, 845 F.2d 842 (9th Cir. 1988). The FCC argued

that because the avoidance claim challenges

NextWave’s contractual obligation to the United States

pursuant to a national statutory scheme for regulating

the commercial use of radio spectrum, federal common

law should apply. The FCC also argued that the court

should apply the Kupetz rule of federal common law,

that a claim for fraudulent conveyance will not lie if

subsequent creditors were on notice of the risks of the

conveyance.

On April 2, 1999, the Bankruptcy Court heard oral

argument and ruied in an oral decision that it would not

invent federal common law or apply the version pre-

sented by the FCC. The Bankruptcy Court reasoned,

and this Court agrees, that federal common law is ap-

plied where application of existing state or federal law

would undermine a federal regulatory program. See

United States v. Little Lake Misere Land Co. 412 US.

580, 604, 93 S.Ct. 2389, 37 L. Ed. 2d 187 (1973)

49a

(“[S]tate law may be found an acceptable choice, .

even when the United States is a contracting party.

However, in a setting in which the rights of the United

States are at issue in a contract to which it is a party and

the issue’s outcome bears some relationship to a federal

program, no rule may be applied which would not be

wholly in accord with that program.”). In this case, the

application of 11 U.S.C. § 544(b) and thereby state

fraudulent conveyance law will not abrogate the explicit

terms or purposes of the regulatory scheme embodied in

Section 309(j) or other sections of the FCA.

This Court also agrees that even if the Bankruptcy

Court had concluded that the “applicable law” is federal

common law, the rule articulated in Kupetz is not the

proper federal common law to apply to this case. The

great majority of the creditors in this case extended

credit before the auction, and before the licenses were

issued and the allegedly fraudulent obligation was in-

curred. Therefore, NextWave’s other creditors are not

subsequent creditors with notice comparable to the

creditors in Kupetz.

May 12 and June 22, 1999 Findings of Fact and Con-

clusions of Law After Trial

In the May 12 opinion, the Bankruptcy Court deter-

mined that the material elements of a fraudulent convey-

ance claim are the same under any law which could ap-

ply, that is, California law, New York law, District of

Columbia law, and the Bankruptcy Code § 548. Apply-

ing those elements, the Bankruptcy Court found after

trial that NextWave had proved its claim for construc-

tive fraudulent conveyance. In the June 22 supplemental

opinion, the Bankruptcy Court granted the remedy pro-

vided by § 544, that is, avoidance to the extent allowed

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