# Petition for Writ of Certiorari — NextWave Personal Communications Inc. v. Federal Communications Commission, 121 S. Ct. 606 (2000) (No. 00-447) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386019_1605%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2000 ## Text a ~~" Supreme Court, 0.8, PILED 00-447 sep » 1 2000 No. OF Fire eer IN THE Supreme Court of the United States NEXTWAVE PERSONAL COMMUNICATIONS INC., ET AL., Petitioners, v. 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 DEBORAH L. SCHRIER-RAPE Counsel of Record MICHELLE V. LARSON DOUGLAS R. COx ANDREWS & KURTH LLP THOMAS G. HUNGAR 1717 Main Street DAVID B. SALMONS Suite 3700 GIBSON, DUNN & CRUTCHER LLP Dallas, TX 75201 1050 Connecticut Avenue, N.W. (214) 659-4400 Washington, D.C. 20036 (202) 955-8500 G. ERIC BRUNSTAD, JR. - BINGHAM DANA LLP DONALD B. VERRILLI One State Street JENNER & BLOCK Hartford, Connecticut 06103 601 Thirteenth Street, N.W. (860) 240-2700 Washington, D.C. 20005 (202) 639-6000 Counsel for Petitioners i QUESTION PRESENTED Whether the court of appeals erred in holding that, notwithstanding the comprehensive grant of bankruptcy jurisdiction conferred by 28 U.S.C. § 1334, the district and bankruptcy courts lack jurisdiction to enforce the provisions of the Bankruptcy Code against a federal agency merely because, absent bankruptcy, review of the agency’s actions may be subject to the exclusive ju- risdiction of another court. li PARTIES TO THE PROCEEDINGS AND RULE 29.6 STATEMENT The parties to the proceedings in the court of appeals were NextWave Personal Communications Inc. (“NPCT’), NextWave Partners Inc. (“NPI’’), NextWave Power Partners Inc. (“NPPI”’), NextWave Wireless Inc. (“NWI”), NextWave Telecom Inc. (“NTI”), and the Federal Communications Commission. NPCI, NPI, NPPI, and NWI are wholly owned subsidiaries of NTI. NTI is not a publicly traded company, and no publicly traded company owns 10 percent or more of its stock. ———- ili TABLE OF CONTENTS Page SUE IEW IRIINE NS STEED vnsncnssscsessesssenssssseccssonsssenscoscocosnes i PARTIES TO THE PROCEEDINGS AND I CEE MUR EET csnsunsnnnnscnnsansasvssannonsancnsnasosscesne ii ee I FAA BERL ED sseeiesecacsessscssonssnnesonssecasceseonses Vv ec svanisstansnvnsnnahunpaarenanaienencenss l i iscsi Lath isnehstsntesminnntnnseesgnessssasmnvecses 1 STATUTORY AND REGULATORY ETD BOT ie WEED vsceessnsiseccnnsescscecensssecssecsconsnenees 1 ae he Lat Se 2 Pa FE UIING asses sscsssnsseisscvessseccscccsccocnssssnseassee 4 B. The Original Bankruptcy Litigation.................:ee 6 C. The Automatic Stay Litigation ...............::::cceseseeeeeeeeees 6 REASONS FOR GRANTING THE WRIT..................-+ 11 I. The Judgment Below Conflicts With The Governing Congressional Enactment And With TR EE 0 ROUTINES oasis siscnssecncrccrerciccoccccrcccscozeseees 11 A. The Court Of Appeals’ Rejection Of — Bankruptcy Jurisdiction Is Irreconcilable With The Plain Language Of 28 U.S.C. § 1334 And The Bankruptcy Code................00++ 11 B. The Judgment Below Directly Conflicts With This Court’s Precedents ...............::scssseee 14 Il. The Second Circuit’s Decision Creates A Square Circuit Conflict ...................c.scccsssrccsessrssessssee 16 iv Ill. The Question Of Federal Bankruptcy Jurisdiction Presented In This Case Is Important And Recurring, And Merits This CIE Oem cxtiakacixinciacininicsbccdanianadinaliecdinansdaieues 19 Sa a aU iiss wiccvuinssnsiceihuplassiashinpensaia vinionnininapelaiaaaedl 26 Fa Ga a siaessnnhecheschcden easing ilauaciaaoaidlbsieandialasocaiaapaaiaas la Vv TABLE OF AUTHORITIES Page(s) CASES Board of Governors v. MCorp Financial, Inc., Ne Ee Be Ce Eh ccnthisveencnceincblecasitnincsintasiatiienn 14 Brock v. Morysville Body Works, Inc., 829 F 2d BE CO GC, Fe incites hes rascapieesienineesiensatrinivsne 3,17 Celotex Corp. v. Edwards, 514 U.S. 300 (1995).......... 15 Cisneros v. Alpine Ridge Group, 508 U.S. 10 FED isisndcniiicsetnsaneinkenbsienabevmigitxetiiitalahgubaniocesinnminiens 15 Commodity Futures Trading Comm'n v. Schor, Ee ea, Re NE vasscinetinintcciacrtninensiaseccnaninesen 15 FCC v. GWI PCS 1, Inc., No. 99-11294 (Sth Cir. Cond ate. FeO. 3, FOV) ccscciseecsesssesorsscorenssenvensetnsesvens 19 Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) .........eeseeeees 23 In re Atlantic Bus. & Community Dev. Corp., 994 Pe Re Ee al BD ete ticiaicicisnctenctansistonnaseniesnes 14 In re Bulldog Trucking, Inc., 150 B.R. 912 ; CIE DIL. TIRE) aseteinsswisevsticnsicccrcsninsenestennsoosonnvesaveen 18 In re Central Ark. Broad. Co., 68 F.3d 213 (8th OU: BOD cisissdensvtinisisncsnnccsmninicenenscitieiabiowsianeciinisoetiniee 14 In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) ................ 18 In re Horizon Air, Inc., 156 B.R. 369 (N.D.N.Y. FFD cnsckecsiusenisinicnantcasmuisionsincnaaiieitetensnauaninnnniselie 18 v1 In re Kansas Personal Communications Services, Ltd., 252 B.R. 179, 2000 WL 1199798 SEs ie UII BI Este nssdicedanncasessecesnensncsoes 18 In re Personal Communications Network, Inc., 249 B.R. 233 (Bankr. E.D.N.Y. 2000)................00. 20 In re Tak Communications, Inc., 985 F.2d 916 Ce i eidblitiechguiiaisscedieinelitiipniicsasiinnnenoashirsiansiiens 14 In re Town & Country Home Nursing Servs., Inc., DOS FB BR CG, OIE i cnscsisccscnscrnessosessncssees 18 In re Transcon Lines, 147 B.R. 770 (Bankr. C.D. Fe caine esi canenseilnipacianilectinashsiicbiintantnideienn 18 In re United States, No. 98-11123 (Sth Cir. Oct. Fg SEE ian saiigaddaaheitabbadeindibicceidasniaiavaniicicntitls 18-19 In re University Med. Ctr., 973 F.2d 1065 (3d 8 RE I ae ee Te TT PE OE 17 Katchen v. Landy, 382 U.S. 323 (1966) .............sscsse0e 15 Langenkamp v. Culp, 498 U.S. 42 (1990) .........ceeseeeeee 15 Official Comm. of Equity Sec. Holders v. Mabey, S5d Fe er Cs CT Bittnsiinsatetbsnsitsttnsasnnsivenns 25 Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd., DOT Si ee Ee FD cicadas hiainleken hee tandiinsntnaonains 22 Quality Tooling, Inc. v. United States, 47 F.3d SP GN a Oe icin sihersiaietisiitnes 3,16,17 United States v. GWI PCS 1, Inc., 245 B.R. 59 (BSED. GR, rer annathanasnbiitiaieianaatileiciiiiiniindnioniininas 18-19 ' sited States v. Whiting Pools, Inc., 462 U.S. TS CU ite asec itcaatncaciexnaniornics 16,24 Vii STATUTES AND REGULATIONS Coseme At Act, 42 U.S.C: 6 FOI TG) ccneescccssessenscnssesssoone 20 Comprehensive Environmental Response, Compensation, and Liability Act, 2 A ail AE sestnciiecsssicecessinasnesonsinuncinnsnatacs 20 - Safe Drinking Water Act, 42 U.S.C. III iiasiiccds ialih sini esigichiaibvacauaichanaihindoboaaemidnhabes 20 Fk Be IN cinrstcitisinntiesiscinsnkasinnienimniniiionpian 20 eas IE iiti isteach niaencpminicda 13,23 ee eae I Bisaseicesleabeadenciccdstnindlandiiostebamebuletioptaiienne 9 Mere seach acc cinsen escapism 23,141a Ee rs eis cidiccscesssnstcxamrcasasacuecnacccebanebeesiainke 12 er Se IE We iinctsceicisatauiccincdesaavianereaieinvcreaan 2 ae Oe aides iniscsntccchcehdanssaniiiannionheoncsane 3,23,25 Fe nT SE iiss citschsssusdviciigeddaianimianntibsannasenecniees 8,13 oe Oe I cis dsicvinsniennineiaeinbsisceegsveiseopasansatnienkia 23 ee es SD cari ceinuisscncssntesinsahsiannsikincesbsakaiuiaions 24 ee ee a I TD sc isndcaciosckeninesibanaenandtiiorninieeiaeniiins 24 ec ie eI EE sins ctnsiiesanseiscuniidobomniiaaedsbiandioeies 24 eae ae BIE BI sisnaseciestasesessiiecrnavipnideibessanninnees 24 Be er Oe I iiiadecinin cs caanisscecasaicbeovsbehediesincsniendehcannssiales 9 ee Te Pe ia aciciitilsnidsnsaitiatilacinintieaniccrsaiinaninhacbiins 3,25,142a Re Seis SF EID sirmninsenacstignonbecninans 8,10,13,23,24,142a ES sia aici dahianssigegbaaabeaniiian 6 "ag 2" EMIS ARS a sa erect 24 Be Ride eta ca canceccnenveauin 24 ie os 24 DR I iii ee 3,13,25 EES OMe Gls c 2. eee nnn 8 CEC. Sot Sh) ae ee 8.9 DN ON hiring iit 25 CRIT Cot 2.) c. |) aes 9 28 U.S.C. § 157 eccccccssssees eee ern a ree ON 2,143a MI 6 I sissies 11,143a BE UBL. © USI) acssnnccssnnsccccnccrceeanrecssnieosse 11,13,143a LR So. : : eee See aE 1 28 U.S.C. § 1295(a)(6)-(14) ..cceecccceccsseeccssecsseesssecssecsees 21 ENE oe a: | eae een 6,11,16,19,23,144a WE UGC. 6 FEI na ccccesscnsecscsscssences 2,11,12,14,15,16, 17,18,19,23,25,144a eee oe 14,145a Bear Cee... 16 ene ee 21 MT © CI sss tcsccsne 16 aE eee ehatae tes tk eater ates ed 21 Oe 2,6,10,12,18 Te Se 20,146a Le Sa 2. RnR es aetna etre ain AD 20 TOG I rr oiisoacsecheetectcseneiooes 20 SEU, PUI isc eecees: 20 Se St ees Ae I sichtiin eesctctiiesarn thin tn etacagathaldeiaidas 20 SF | CRE EE GN a 20 ics yD iticinitssanciaicssiessbind isabel 20 SE gis Ae EE TD isseiccsa pints cisiviesid dieihindiceanatesnariaateiaideasta 20 Fae ee ID aicclisictianictitesiistalleiuidaalaaaialdtabiaa 17 Fe SE iE in itdipieccinciditansennsiicnnicahipiaadidiateedbuetmaaces 21 OF Sans Be itissienheincesnestnecnicennions nivlaaianaaneinte 2,6,147a i S| RSE I 10,11,147a Fa ae tievninslecncaiapadtionstactlaiiioinsediai 12,20,147a Se Spine Se COG IEE vainhansiccnsvinecipncacvesesitecduadabicliccacbadbsicains 21 BF pe eee ee ieeesicasvcn ceorarhagnciadiadectied 5 OF Cr ie ST Fe COD eiecinstisssenstcitensdniblaincesiaitanenie 5 OTHER AUTHORITIES H.R. REP. NO. 595, 95th Cong., 2d Sess. (1977), reprinted in 1978 U.S.C.C.A.N. 5963 .......... 11,14,22 S. REP. NO. 989, 95th Cong., 2d Sess. (1978), reprinted in 1978 U.S.C.C.A.N. 5787 ........ccscceeeeeee 22 Se ek ie IE tor a breathing spell from his credi- tors. It stops «ll collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or sim- ply to be relieved of the financial pressures that drove him intobankruptcy. H.R. Rep. No. £95, 95th Cong., Ist Sess. 340 (1977), U.S. Code Cong. & Admin. News p. 6296, reprinted in Col- lier on Bankruptcy App. Pt. 4(d)(); S. Rep. No. 989, 95th Cong., 2d Sess. 54-55 (1978), U.S. Code Cong. & Admin. News pp. 5840-5841, reprinted in Collier on Bankruptcy App. Pt. 4(e)(i). S5la thwarted by the action of a single creditor. Jn re Monroe Park, 18 B.R. 790, 791 (Bankr. D. Del. 1982) (“It is clear that Congress intended a financially troubled debtor to be able to reorganize after there has been a de- fault and acceleration even in the face of state law which requires the consent of the creditor for cure and rein- statement once the entire amount has become due.”’) See point I B, below. As noted in Collier on Bankruptcy: In reorganization cases, the stay is particularly important in maintaining the status quo and per- mitting the debtor in possession or trustee to at- tempt to formulate a plan of reorganization. Without the stay, the debtor’s assets might well be dismembered, and its business destroyed, be- fore the debtor has an opportunity to put forward a plan for future operations. Secured creditors and judgment creditors might race to seize and sell the debtor’s assets in order to obtain satisfac- tion of their claims, without regard to the interests of other creditors or the value of keeping assets together in an operating business. The stay pre- vents this piecemeal liquidation, offering the chance to maximize the value of the business. 3 Collier on Bankruptcy J 362.03[2] at pp. 362-15 (15th Ed. rev. 1999). The courts inthis Circuit hold that any action taken in violation of the automatic stay is void and without force or effect. 48th Street Steakhouse, Inc. v. Rockefel- ler Group, Inc. (In re 48th Street Steakhouse, Inc.), 835 F.2d 427, 431 (2d Cir. 1987) (“actions taken in violation of the stay are void and without effect” (quoting Collier on Bankruptcy)), cert. denied, 485 U.S. 1035, 108 S. Ct. 1596, 99 L. Ed. 2d 910 (1989). See also Shimer v. Fu- gazy (In re Fugazy Express, Inc.), 114 B.R. 865, 873 (Bankr. S.D.N.Y. 1990) (“[s]ince § 362 of the Code stays all enforcement activity automatically, the 1988 FCC letter [purportedly canceling the license] is accord- ingly without effect” (citing Jn re Garnett, 47 B.R. 170, 52a 171 (Bankr. E.D.N.Y. 1985) (“[t]he action of a party in violation of the stay without court approval is void and without effect”))), aff'd, 124 B.R. 426 (S.D.N.Y. 1991). The automatic stay is embodied in 11 U.S.C. § 362(a)._ Section 362(a) provides as follows, in relevant part: (a) Except as provided in subsection (b) of this section, a petition filed under section 301... of this title... operates as a stay, applicable to all entities, of - (1) the commencement or continuation... of a([n]... administrative, or other action or pro- ceeding against the debtor .. . to recover a claim - against the debtor that arose before the com- mencement of the case under this title; * * * (3) any act to obtain possession of property of the estate or of property from the estate or to ex- ercise control over property of the estate; (4) any act to...enforce any lien against prop- erty of the estate; - (5) any act to... enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; (6) any act to collect, assess, or recover a claim against the debtor that arose before the com- mencement of the case under this titie. All of the quoted subsections of Section 362(a) are implicated by the FCC’s issuance of the January 12 Dec- laration. There can be no question that the FCC’s act is claim-based -- the January 12 Declaration of cancella- tion was explicitly and exclusively predicated upon NextWave’s failure to make timely payment of install- ments due post-petition on the FCC’s pre-petition claim 53a under the Notes. There can be no doubt that the Li- censes constitute “property of the estate” under Section 541 of the Bankruptcy Code.? The January 12 Declara- 7The FCC has never argued that the licenses are not property of the estate. Section 541 is broadly construed to encompass all conceivable interests of the debtor in property, United States v. Whiting Pools, 462 U.S. 198, 103 S. Ct. 2309, 76 L. Ed. 2d 515 (1983). Although the Circuit Court Decision stated in a different context that a license “does not convey a property right” in the traditional sense (200 F.3d at 51), the law is clear that possessory and intangible interests in general and FCC licenses in particular do constitute prop- erty of the estate in bankruptcy. See e.g., In re Central Ar- kansas Broadcasting Company, 68 F.3d 213, 214 (8th Cir. 1995) (interests of debtor in FCC license property of the es- tate); In re Tak Communications Inc., 985 F.2d 916 (7th Cir. 1993) (same); Jn re PBR Communications Systems, Inc., 172 B.R. 132, 134 (Bankr. S.D.Fla. 1994) (same); In re Ridgely Communications, Inc., 139 B.R. 374 (Bankr. D. Md. 1992) (same); Shimer v. Fugazy (In re Fugazy Express, Inc.), 114 B.R. 865, 870-71 (Bankr. S.D.N.Y. 1990), aff'd, 124 B.R. 426 (S.D.N.Y. 1991) (same). Upon the grant of the licenses, the debtors were required to execute not only the Notes but security agreements giving the FCC “a first lien on and con- tinuing security interest in all of the Debtor’s rights and in- terests in the License and all proceeds, profits and products of any sale of or other disposition thereof. . . .” The FCC filed UCC financing statements in several jurisdictions, put- ting the world on notice of its security interest in the licenses. A “security interest” is an “interest in property obtained pur- suant to a security agreement.” Black’s Law Dictionary (6th ed. 1990) at 1357. Uniform Commercial Code § 1-201(37) provides ““Security Interest’ means an interest in personal property or fixtures which secures payment or performance of an obligation.” 54a tion implicates subsections (1) and (6), and it unarguably violated subsections (3), (4) and (5). Accordingly, the January 12 Declaration was void. B. The right to cure defaults and reinstate ob- ligations to avoid forfeiture and facilitate reorganization One of the essential objectives of the automatic stay under Section 362(a) is to avoid the effective nullifica- tion of other provisions of the Bankruptcy Code de- signed to facilitate the central Code objective of reor- ganization, including the right to cure defaults under Sections 1123(a)(S)(G) and 1124(2)(A). Section 1123(a)(5)(G) provides that “a plan shall . . . (5) provide adequate means for the plan’s implementation, such as...(G) curing or waiving any default.” Section 1124(2)(A) expressly contemplates a plan which “(A) cures any such default that occurred before or after the commencement of the case under this title,” and this applies “(2) notwithstanding any contractual provision or applicable law that entitles” a creditor to demand or receive accelerated payment. Thus, even if there was a default in the “timely” payment of installments under the Notes, the Bank- ruptcy Code explicitly provides for the right to cure the default and reinstate the obligation. The “cure,” al- though not defined, is “reversal” of the event that trg- gered the default and a return to a pre-default status quo. DiPierro v. Taddeo (In re Taddeo), 685 F.2d 24, 26-27 (2d Cir. 1982); In re Liberty Warehouse Assocs. Ltd. Partnership, 220 B.R. 546, 548 (Bankr. S.D.N.Y. 1998) (“Under § 1124(2), a debtor can cure its pre-petition de- fault under a note or other debt instrument”). As con- cisely stated by the Second Circuit, “[c]uring a default commonly means taking care of the triggering event and returning to pre-default conditions. The consequences are thus nullified.” Zaddeo, 685 F.2d at 27. 55a Although Taddeo was a Chapter 13 case, its holding applies with equal force in the Chapter 11 context, as the language in both Chapters is substantially similar. Com- pare 11 U.S.C. § 1322(b)(5) (stating that a chapter 13 plan may “provide for the curing of any default within a reasonable time. . . .”) with 11 U.S.C. § 1123(a)(5) (quoted above) and 11 U.S.C. § 1124(2)(A) (quoted above) and 11 U.S.C. § 1222(B)(5) (stating that a plan may “provide for the curing of any default within a rea- sonable time. . . .”). Furthermore, the concept of “cure” and/or reinstatement appears throughout the Bankruptcy Code and is globally intended to permit a debtor to put the debt in question back on track and effect a reorgani- zation.. See 11 U.S.C. §§ 365(b)(1),8 1110(a)(1)(B),9 1168(a)(1)(B),!° and the sections cited and quoted above. This concept and the intent behind it is borne out by the legislative history to Section 1124(2), which states that a claim or interest is unimpaired by curing the ef- fect of a default and reinstating the original terms of an obligation when maturity was brought on or accelerated by the default. The intervention of bankruptcy and the defaults represent a tempo- rary crisis which the plan of reorganization is in- tended to clear away. The holder of a claim or 8Providing that if there has been a default in an execu- tory contract or unexpired lease, in order to be assumed, the trustee must “cure[] or provide[] adequate assurance that the trustee will promptly cure, such default.” 9 Allowing secured party to take possession of aircraft equipment and vessels unless a default under the security agreement, lease or contract is cured. 10A lowing secured party to take possession of rolling Stock or accessories thereto unless a default under the secu- rity agreement, lease or contract is cured. 56a interest who under the plan is restored to his original position, when others receive less or get nothing at all, is fortunate indeed and has no cause to complain. Curing of the default and the assumption of the debt in accordance with its terms is an important reorganization technique for dealing with a particular class of claims, espe- cially secured claims. S. Rep. No. 989, 95th Cong., 2d Sess. 120 (1978), U.S. Code Cong. & Admin. News p. 5906 (emphasis sup- plied). “In short, ‘curing a default’ in Chapter 11 means... the event of default is remedied and the con- sequences are nullified.” Taddeo, 685 F.2d at 29. No more dramatic exemplar of the rehabilitative ob- jectives of the “cure” provisions of the Bankruptcy Code could be imagined than this very case. NextWave has proposed in its Modified Plan to pay upon confirmation all amounts accrued and owing to the FCC through the date of confirmation (including installment payments, interest, late charges and penalties), reinstate the pay- ment schedule initially agreed to with the FCC and specified in the Notes, and pay all unsecured creditors, in full. If the statutory right to cure were not honored and the FCC were permitted to reclaim NextWave’s li- censes by retroactive forfeiture, the result would be eco- nomic catastrophe for the holders of $627 million of se- cured and unsecured debts and the probable destruction of any value in NextWave for equity holders who in- vested $420 million. The FCC itself would forfeit for the public full payment of the entire $4.7 billion bid by NextWave for the C Licenses, plus interest and late fees. Perhaps the FCC speculates it may achieve a greater fi- nancial return for the public in the scheduled July 26 auction of NextWave’s licenses, but that is an equation expressly forbidden by the governing statute, FCA § 309(j)(7)(A), discussed in point IV, below. . $7a C. The prohibition against discriminatory treatment For this Court to give legal effect to retroactive can- cellation of the Licenses would effectively validate the functional equivalent of an ipso facto provision (also re- ferred to as a bankruptcy default provision), which serves to inflict a penalty or forfeiture on a debtor for exercising a Federal right. Taylor v. Albany Employees Federal Credit Union (In re Taylor), 146 B.R. 41, 46-47 (M.D. Ga. 1992) (holding ipso facto clauses invalid as a matter of law because they serve to penalize debtors from exercising their federal right to file for bank- ruptcy), rev'd on other grounds, 3 F.3d 1512 (11th Cir. 1993); Riggs Nat'l Bank of Washington, D.C. v. Perry (In re Perry), 29 B.R. 787, 790-91 (D. Md. 1983) (hold- ing that ipso facto clauses are unenforceable as a matter of law because they unfairly tip the scale in favor of creditors by effectively granting automatic relief from the automatic stay), aff'd, 729 F.2d 982 (4th Cir. 1984); General Motors Acceptance Corp. v. Rose (In re Rose), 21 B.R. 272, 275-79 (Bankr. D. N.J. 1982) (“Enforce- ability of these clauses would, in effect, render a penalty on debtors.” /d. at 277). See also 7 Collier on Bank- ruptcy § 1124.03[2] at p. 1124-10 (15th Ed. rev. 1999) (stating that Section 1124(a)(2) of the Bankruptcy Code “permits the plan to reinstate the maturity of a claim or interest without curing any defaults with respect to the financial condition of the debtor that are included in the Section 365(b)(2)(A) ipso facto clauses. This interpreta- tion of Section 1124(a) is correct”). Section 525(a) of the Bankruptcy Code is a statutory companion of the foregoing principle. Section 525(a) prohibits a governmental unit from revoking a license in retaliation for commencement or prosecution of a bank- ruptcy case or the alleged nonpayment of a pre-petition claim. The statute provides, in relevant part: (a) Except as provided in [not applicable], a gov- ernmental unit may not deny, revoke, suspend or 58a refuse to renew a license, permit, charter, fran- chise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against. . . a person that is or has been a debtor under this title. . . or another person with whom such debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title... or has not paid a debt that is dischargeable in the case under this title... . See, e.g., In re Bill, 90 B.R. 651, 658 (Bankr. D. N.J. 1988) (suspending driver’s license for failure to pay sur- charge violated § 525); Jn re The Bible Speaks, 69 B.R. 368, 373 (Bankr. D. Mass. 1987).!! It is well recognized that “[t]he prohibition against discrimination based upon the filing of a bankruptcy case necessarily extends to discrimination based upon automatic or likely conse- quences of such filing.” 4 Collier on Bankruptcy § 525.02[1] at pp. 525-7. It appears that the FCC has violated Section 525 in its attempt to retroactively cancel the Licenses. The ap- parent discrimination is alleged in two forms. 11 Stating that: It is not consistent with the statute to permit the Board to act based upon a Chapter 11 school’s in- solvency merely because it takes such action with respect to all schools who are insolvert. whether they are inside or outside of bankruptcy. Such an in- terpretation preserves the “fresh start” policy of the Bankruptcy Code. It prevents the Debtor’s present financial difficulties from being the charter for his future. It also promotes the policy of allowing the Debtor breathing room and a respite from outside pressure. The Bible Speaks, 69 B.R. at 373 (footnote omitted). 59a One form is the alleged differences in treatment of NextWave, on the one hand, and other C block and other spectrum license holders, on the other, summarized in the submission of debtors’ counsel. To establish this form of discrimination would require discovery proceed- ings and an evidentiary hearing to afford both sides pro- cedural due process. The other form of discrimination appears from the facts which are before the Court. After a year of intense litigation the FCC has been vindicated in the Court of Appeals in its contention that a regulatory purpose was implicit in the “full payment requirement” in the FCC regulations. That regulatory objective is fulfilled in the debtors’ modified Plan now awaiting a confirmation hearing. It would have been more than fully served un- der the NextWave proposal of January 11 to pay the en- tire $4.3 billion outstanding obligation in a lump sum upon confirmation, rather than in installments over the next seven years. As further amplified under point IV, below, the FCC has not and cannot articulate any regula- tory interest entailed in the “timely payment” require- ment for the modest delay in interest and installment payments to date. The “timely payment” requirement is purely economic (i.e., the time value of money), and the economic consequence of delay will be fully cured by payment in full of all applicable interest, penalties and late fees upon confirmation under the debtor’s modified Plan, if the Plan is ever allowed to reach a confirmation hearing and is confirmed. Lacking any comprehensible regulatory objective, one must consider the consequences of the FCC’s Janu- ary 12 Declaration. As stated by the FCC in its Objec- tion to confirmation, reorganization of NextWave with- out the Licenses would be impossible, and the debtors’ assets would likely be liquidated and sold in Chapter 7. Equity investors could suffer a total loss on their in- vestments aggregating $420 million. Secured and unse- cured debt aggregating $627 million might recover a 60a small percentage. The FCC (or rather, the public fisc) may also suffer economically, perhaps severely. The proposed July 26, 2000 reauction of NextWave’s C and F Licenses will be open only to “designated entities” qualified to bid for C and F block spectrum under the FCC’s regulations. Designated entities are by definition start-up, entrepreneurial entities and regional telephone companies lacking the financial resources of the major players in the wireless market, such as AT&T, Sprint and Nextel. In the 1999 reauction of predominantly Re block spectrum, 34 licenses received no bids, and the rest were sold at values equating to a small fraction of the approximately $4.7 billion plus interest and late fees to be paid by NextWave under its modified Plan. Finally, one of the important statutory objectives of FCA § 309(j), rapid deployment and utilization of C and F block spectrum by designated entities, would be un- dermined by cancellation and reauction of the Licenses. Judging by the C, D, E and F block auctions, it is highly unlikely that licenses auctioned beginning on July 26, 2000 would result in final grant of the Licenses to the high bidders before winter or spring 2001, at which time the designated entity licensees would have to raise the necessary funding to begin building out their PCS sys- tems. NextWave is a designated entity. It was awarded the Licenses in January 1997. It represents that it has already developed the necessary infrastructure to a con- siderable degree. It is prepared to put the Licenses into use almost immediately. And all this must be consid- ered in light of the fact that PCS and wireless telephony is developing at lightning speed, such that another year’s delay is of great significance. These facts would appear to present a clear and con- vincing prima facie case of retaliation in violation of Section 525. However, I am reluctant to make a finding that an agency of the United States Government has acted with mala fides in the conduct of its statutory du- ties without giving the FCC a further opportunity to pre- 6la sent evidence and argument in support of a good faith, non-retaliatory explanation for its actions and, corre- spondingly, counsel for NextWave an opportunity to ex- amine into the Agency’s motivation through appropriate discovery. Accordingly, I shall not rule upon the debt- ors’ argument under Section 525. In the hope that a rul- ing may be rendered unnecessary by the course of events, I shall order the parties to desist from further proceedings in respect of Section 525 until one side or the other makes an appropriate request on the record, either orally or in writing, to reopen the issue. D. The FCC’s bankruptcy law contentions The FCC’s contention that the January 12 Declara- tion did not constitute an “act” violating the automatic Stay within the meaning of subsections (3), (4) and (5) of Section 362(a) because the cancellation was “automatic” as of late 1988 or January 1999 does not withstand analysis. As already explained, even if the cancellation were truly “automatic” it would mean nothing unless the FCC did something to “exercise control over,” or “en- force [its] lien against” the Licenses. Until the FCC took an affirmative “act” with respect to the Licenses -- the January 12 Declaration -- no one even knew of the putative cancellation, and all parties (including the FCC) and all three Federal courts proceeded upon the assump- tion that the Licenses were the property -of the NextWave estate. The FCC’s argument is too facile. A first-time act of dominion over property of the debtors’ estate cannot be exempted from the operation of Section 362(a) by an expedient, post hoc assertion that no pre- sent act occurred because it all happened “automati- cally” more than a year ago. The automatic stay is broadly written and broadly construed. Section 362(a)(3), (4) and (5) Stay “any act” to obtain possession of, exercise control over, or enforce a lien against, property of the estate. Delpit v. Commis- sioner of Internal Revenue Service, 18 F.3d 768, 771 (9th Cir. 1994) (“[sJection 362 ‘is exceedingly broad in 62a scope’ and ‘should apply to almost any type of formal or informal action against the debtor or the property of the estate’” (quoting Collier on Bankruptcy)). There is no dispute that it applies to the Federal government and its agencies, such as the IRS and the FCC. Fugazy Express, 114 B.R. at 872-73 (“at the time of the filing the License was property of the Debtor’s estate and had remained so. The FCC was subject to the automatic stay and pre- cluded from rendering any administrative cancellation of the License once the Debtor filed a petition in bank- ruptcy.... Thus, the License remained property of the estate, even though administratively it became subject to cancellation.” id. at 873). Contrary to the FCC’s arguments (and the Gull Air and Yellow Cab decisions, discussed above), there is substantial authority holding that regulatory provisions which interfere with property of a debtor’s estate, even by “automatic” operation of the regulation, violate the automatic stay. See, Jn re American Central Airlines, Inc., 52 B.R. 567, 569-571 (Bankr. N.D. Iowa 1985) (stating that, with respect to administrative action to re- allocate FAA landing slots, “[t]he mere fact that an in- terest exists by the grace of government no longer pre- cludes the interest from being treated as a property right,” id. at 571, and holding that “any act to enforce this [use it or lose it] contractual provision against the Debtor’s will constitutes an act to obtain possession of property of the estate and an attempt to exercise control over property of the estate,” id. at 570 and an “unlawful act” in violation of 11 U.S.C. § 362(a)(3), id. at 571). “{R]egulatory provisions in direct conflict with control of the property [of the debtor’s estate] by the Bank- ruptcy Court violate the automatic stay.” Jn re National Cattle Congress, Inc., 179 B.R. 588, 597 (Bankr. N.D. Iowa 1995) (citing MCorp. Financial Inc. v. Board of Governors of Federal Reserve System, 502 U.S. 32, 39, 112 S. Ct. 459, 116 L. Ed. 2d 358 (1991) and Missouri v. U.S. Bankruptcy Court, 647 F.2d 768, 776 (8th Cir. 1981), cert. denied, 479 U.S. 910, 107 S. Ct. 307, 93 L. 63a Ed. 2d 282 (1986)), remanded on other grounds, 91 F.3d 1113 (1996). Under this authority, an FCC regulation effecting automatic cancellation of a debtor’s property rights by reason of any default would itself violate the automatic stay. Furthermore, the term “act” as employed in Section 362 must be broadly construed to include the failure to stop actions that could have been stopped. 3 Collier on Bankruptcy 4 362.03[8] at 362-63 (15th ed. rev. 1999); see In re Hellums, 772 F.2d 379 (7th Cir. 1985); In re Sucre, 226 B.R. 340, 347 (Bankr. S.D.N.Y. 1998) (creditor has affirmative duty to discontinue garnish- ment action). The FCC certainly had the discretionary authority to take any number of actions to avert or delay the purported automatic cancellation (see discussion un- der the heading The Alleged “Automatic” Cancellation, above), including simply not issuing the January 12 Declaration. The FCC’s decision to issue the January 12 Declaration was not “automatic.” And, as already noted, but for the FCC’s affirmative act in issuing the January 12 Declaration, all parties and the Courts would have proceeded, as they have through- out these proceedings, upon the assumption that the Li- censes were not cancelled and remained the property of NextWave. Thus, in the real world it did require an “act” to give effect to the putative automatic cancella- tion, and that act violated the automatic Stay. Finally, it cannot be overemphasized that the FCC it- self has repeatedly acknowledged that the automatic stay applies to the automatic cancellation provisions of its regulations, and that the automatic stay precludes auto- matic cancellation in the absence of an order of the Bankruptcy Court lifting the stay. No better evidence of this can be found than in the motion to lift the automatic stay which the FCC actually did make in late May 1999, and which was the subject of NextWave V. The Memo- randum of Law in support of the FCC’s Motion to Lift Automatic Stay, dated May 28, 1999, expressly ac- 64a knowledged that the automatic stay “is currently in place pursuant to 11 U.S.C. § 362(a)” (p. 1) and continued: Accordingly, the FCC respectfully submits that “cause” exists under section 362(b){1) for the Court to lift the automatic stay so that the regula- tions’ automatic cancellation provisions may take effect. Id. at 2; emphasis supplied. The concluding lines in the FCC’s Memorandum state: For the reasons stated above, the Court should grant the FCC’s motion to lift the automatic stay so that the Licenses may cancel automatically. Id. at 4; emphasis supplied. !2 12For other judicial acknowledgments by the FCC that a motion would be necessary to revoke or cancel NextWave’s Licenses, see, e.g.: e FCC Memorandum dated in May 1998 in sup- port of motion to disqualify NextWave’s counsel, at page 21, footnote 5, referring to “any motion by the FCC to lift the automatic stay for the purposes of revoking NextWave’s C block licenses.” e Statements by FCC counsel in arguments be- fore District Judge Parker on November 9, 1998: “During the pendency of the bankruptcy, the Bank- ruptcy Court and the automatic stay would hold the creditors at bay, including the Federal Communica- tions Commission” (Tr. 5), and before this Court on November 12, 1998 “The regulations provide that upon failure to make the payments the license is automatically cancelled. That hasn't (happened) in this case due to the automatic stay” (Tr. 30, empha- sis supplied). [Footnote continued on next page] 65a The FCC was correct in May 1999 --Section 362(a) does indeed require a court order lifting the automatic Stay before the “automatic cancellation provisions may take effect....so that the Licenses may cancel auto- matically.” No such order was granted in June 1999, and none was sought prior to the January 12 Declara- tion. Both the January 12 Declaration and the purported automatic retroactive cancellation of the Licenses are violations of the automatic stay. The FCC’s contention that its action was somehow Shielded under the “governmental” exception to the automatic stay found in Section 362(b)(4) is not well- founded. Section 362(b)(4) provides: (b) The filing of a petition under . . . , does not operate as a stay -- (4) under paragraph (1), (2), (3), or (6) of subsec- tion (a) of this section, of the commencement or continuation of an action or proceeding by a gov- ernmental unit... . to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an ac- tion or proceeding by the governmental unit to enforce such governmental unit’s or organiza- tion’s police or regulatory power [Footnote continued from previous page] e With respect to the F block licenses, statement by FCC counsel on May 26, 1999 before this Court “There is no trigger for the automatic cancellation that I understand to date with regard to the F-block licenses. As I understand it, they can comply with their payment obligations, they may well be in a po- sition to reorganize around their F-block property” (Tr. 17). 66a In interpreting this recently amended provision’s excep- tion of the automatic stay to a governmental exercise of “police and regulatory” power, case law developed un- der former Sections 362(b)(4) and (5) remains as viable guidance. Jn re Mohawk Greenfield Motel Corp., 239 B.R. 1, 5 at n.6 (Bankr. D. Mass. 1999) citing 3 Collier on Bankruptcy § 362.05[5][b] (16th Ed. 1999) and 2 Norton Bankruptcy Law and Practice 2d § 36.18 (1999). The legislative history of Section 362(b)(4) is in- structive as to the meaning of “police and legislative power.” The House Report on the 1978 Reform Act states: paragraph (4) excepts commencement or con- tinuation of actions and proceedings by govern- mental units to enforce police or regulatory pow- ers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, envi- ronmental protection, consumer protection, ‘safety or similar police or regulatory laws or attempting to fix damages for violation of such law, the ac- tion or proceeding is not stayed under the auto- matic stay. H.R. Rep. No. 95-595, 95th Cong., Ist Sess. 343 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 51-52, re- printed in 1978 U.S.C.C.A.N. 5787, 5838, 5963, 6299. Representative Edwards’ and Senator DeConcini’s comments further clarify that Section 362(b)(4) must “ . be given a narrow construction . . . and not . . . apply to actions by a governmental unit to protect a ‘pecuniary interest in property of the debtor or property of the es- tate.” P.L. 95-598, 1978 U.S.C.C.A.N. 5787, 6444-45, 6513. (emphasis supplied) Thus, the test to determine if this narrow exception applies is whether the governmental action is in pursu- ance of a pecuniary purpose or public policy. Jn re Dunbar, 235 B.R. 465, 471 (9th Cir. BAP 1999). Under 67a the pecuniary purpose test, Section 362(b)(4) will not except the automatic stay where “government action re- lates ‘primarily to the protection of the government’s pecuniary interest in the debtor’s property’ . : . pursued ‘solely to advance a pecuniary interest of the govern- mental unit.’“ Jd. citing Universal Life Church, Inc., 128 F.3d 1294, 1297, 1299 (9th Cir. 1997), cert. denied, 524 U.S. 952, 118 S. Ct. 2367, 141 L. Ed. 2d 736 (1998). The public policy test, however, examines whether the governmental action is in furtherance of matters of pub- lic policy or merely the adjudication of private rights as between the government and the debtor. Jn re Dunbar, 235 B.R. at 471. (“Where the agency’s action affects only the parties immediately involved in the proceed- ings, it is exercising a judicial function and the debtor is entitled to the same protection from the automatic stay as if the proceeding were being conducted in a judicial forum.”). See also, In re Fugazy Express, Inc., 124 B.R. 426 (S.D.N.Y. 1991), appeal dismissed, 982 F.2d 769 (2d Cir. 1992) (retroactive cancellation of license by FCC not shielded by Section 362(b)(4) since action did not impact the health or safety of the public). Section 362(b)(4) is not applicable here. The FCC’s action is nothing other than a direct attempt to enforce its pecuniary interests. The stated premise of the FCC’s action is the debtors’ post-petition payment default. The FCC has attempted to exercise a self-help remedy for a purely financial default under the guise of a regulatory act. As noted by the Second Circuit in Fugazy, which also dealt with a purported FCC automatic retroactive cancellation: Nothing in the Code suggests that a party is enti- tled to engage in “self-help” in derogation of the automatic stay. See In re Computer Communica- tions, Inc., 824 F.2d 725, 731 (9th Cir. 1987) (“Judicial toleration of an alternative procedure of self-help and post hoc justification would de- feat the purpose of the automatic stay”). 68a In re Fugazy Express. Inc., 982 F.2d at 776. The FCC acted as a creditor, and as discussed else- where in this decision, not in any regulatory capacity. Thus, the FCC’s citations to /n re Gull Air, Inc., supra, and Jn re Yellow Cab Co-op. Ass'n, supra, are unpersua- sive because these cases consider issues pertaining to regulatory non-use conditions, not vindication of the government’s pecuniary interest. II. There can be no “default” for failure to .aake a payment precluded under the Bankruptcy Code At the core of this matter is the FCC’s attempt to in- voke a self-help remedy for the debtors’ post-petition default on a pre-petition claim. The petition date is June 8, 1998. The January 12 Declaration recites “de- linquencies” in payment more than 90 days from July 31, 1998, delinquencies clearly falling within the post- petition period and clearly arising from the January 3, 1997 Notes. “A claim is not rendered a post-petition claim simply by the fact that time for payment is trig- gered by an event that happens after the filing of the pe- tition.” Jn re Oxford Management, Inc., 4 F.3d 1329, 1335 n.7 (Sth Cir. 1993). Any notion of a legally cognizable “default” presup- poses that the debtors could have lawfully made post- petition payments to the FCC in the first instance. As a matter of fundamental bankruptcy law, the debtors could not have made post-petition payments on account of this pre-petition claim absent an order of this Court, after no- tice and a hearing according due process to all affected parties. See 11 U.S.C. §§ 102(1) and 363. Section 363(b)(1) authorizes the debtors, through ap- plication of Section 1107(a), to “use, sell, or lease, other than in the ordinary course of business, property of the estate,” but only after notice and a hearing. “Section 363 is designed to strike [a] balance, allowing a business to continue its daily operations without excessive court 69a or creditor oversight and protecting secured creditors and others from dissipation of the estate’s assets.” Jn re Lavigne, 114 F.3d 379, 384 (2d Cir. 1997) citing Jn re Roth-American, 975 F.2d 949, 952 (3d Cir. 1992) and quoting /n re H & S Transportation Co., Inc., 115 B.R. 592, 599 (M.D. Tenn. 1990). Section 1108 authorizes the debtors to operate the business, and therefore Section 363(c)(1) allows the debtors “unless the court orders otherwise, .. . [to] enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and [to] use property of the estate in the ordinary course of busi- ness without notice or a hearing.” Jn re Lavigne, 114 F.3d 379, 384 at n.3; 11 U.S.C. § 363(c)(1). The debtors’ business (recognizing that it is still a Start-up company) is “to build and operate [PCS] Sys- tems in geographical areas referred to as Basic Trading Areas (“BTAs’), and to provide wireless Internet access and voice services to a broad range of distribution part- ners.” First Amended Disclosure Statement, dated July 27, 1999 at 5. Courts commonly apply the “hori- zontal” and “vertical” test to determine whether a trans- action is “ordinary.” See In re Lavigne, 114 F.3d at 384. But neither test is apposite here. In no way could it have been the ordinary course of NextWave’s business to make payments on the $4.7 billion pre-petition claim of the FCC post-petition, even if that claim had not been challenged as a fraudulent conveyance in a hotly con- tested adversary proceeding. Even ordinary course creditors (such as inventory or parts suppliers, utilities and the like) cannot be paid their pre-petition claims without a court order. It is fundamental in a Chapter 11 case that the pre-petition claims of all creditors, whether coming due pre- or post-petition, get paid only by court order or in accordance with a court-confirmed plan of reorganization. As aptly expressed in Jn re H&S Trans- portation Co., Inc.: 70a Thus, the authorization in § 363 that the trustee may use property of the estate in the “ordinary course of business” without notice or a hearing cannot be construed to permit payments that frus- trate the theory and philosophy of the Bankruptcy Code. Pressman v. Bank of St. Louis (In re J.T.L., Inc.), 36 B.R. 860, 862 (Bankr. E.D. Mo. 1984). See Employee Transfer Corp. v. Grigsby (In re White Motor Co.), 831 F.2d 106 (6th Cir. 1987) (does not authorize conversion of prepeti- tion debt to postpetition debt); Lopa v. Selgar Re- alty Corp. (In re Selgar Realty Corp.), 85 B.R. 235, 240 (Bankr. E.D.N.Y. 1988) (does not authorize sale of primary asset without notice and hearing);... J.7.L., 36 B.R. at 862 (does not au- thorize postpetition payment of interest on prepe- tition note). Rather, the Court must interpret whether payments were made in the “ordinary course of business” with sensitivity to the Code’s overriding policy of maximizing the value of the debtor’s estate for the benefit of the creditors. 115 B.R. at 599. Actions which violate Section 363 are “void.” Jn re Lavigne, 114 F.3d at 385 (purported can- cellation of policy was void as an extraordinary disposi- tion of property of the estate without notice or hearing). Any unauthorized post-petition payments to the FCC on account of its pre-petition claim would be avoidable at the instance of the debtors or other creditors as an unau- thorized post-petition transfer under Section 549. See 11 U.S.C. § 549(a)(1)(B) (“the trustee may avoid a transfer of property of the estate ... that occurs after the com- mencement of the case; and... that is not authorized under this title or by the court”’). It is senseless to speak of a “default” when, as a mat- ter of bankruptcy law, the debtors had neither the au- thority nor the ability to make such payments absent no- tice and court approval. This is not a case where the FCC is entitled to post-petition payments on the Notes : EEE Baa 7la because it has shown that it needs adequate protection of its lien, see 11 U.S.C. §§ 361 and 362(d)(1), or that the value of its lien is in any way impaired. The FCC can point to no provision of the Bankruptcy Code that ac- cords it a right to “timely” payment of post-petition de- linquencies, such as a commercial landlord may claim under Section 365(d)(3). The FCC must, like other creditors, go through the plan process and have its claim administered under the Bankruptcy Code. The FCC could have applied to this Court to compel NextWave to make post-petition payments. But it did not do so. Indeed, had the FCC ever made the debtors aware that it stood ready to enforce cancellation of the debtors’ principal assets, the debtors could have applied to this Court under Section 363, or possibly even Section 105 under the necessity of payment doctrine, or the debtors could have attempted to arrange DIP financing to pay the amounts and sought approval under Section 364. But the FCC never did so. The protection due the FCC under the Bankruptcy Code exists in the debtors’ Plan. The FCC will be paid in full, the putative “defaults” cured and nullified. No creditor can ask for better protection, in or out of bank- ruptcy. The FCC cannot stand upon 47C.F.R. § 1.2110(£)(4)(iv) to suborn Title 11: It is a fundamental principle of American law that legislative statutes take precedence over conflict- ing administrative regulations. See, e.g., Caldera v. JS. Alberici Constr. Co., 153 F.3d 1381, 1383, n.** (Fed. Cir. 1998) (“Statutes trump conflicting regulations”); Wolf Creek Collieries v. Robinson, 5 872 F.2d 1264, 1267 (6th Cir. 1989) (“statutory language . . . prevails over inconsistent regulatory language”); Pacific Gas and Elec. Co. v. United States, 664 F.2d 1133, 1136 (9th Cir. 1981) (“a regulation which operates to create a rule out of harmony with the statute, is a mere nullity”) (cit- ing Manhattan Gen. Equip. Co. v. Commissioner 72a of Internal Revenue, 297 U.S. 129, 134, 56 S. Ct. 397, 80 L. Ed. 528 (1936)); United States v. Gordon, 638 F.2d 886, 888 (Sth Cir. 1981) (“Whatever effect the agency regulation may have under other circumstances, it cannot super- sede a statute applicable to those present here”). Furlow v. United States, 55 F. Supp. 2d 360, 364-65 (D. Md. 1999) (Treasury Department regulation imper- missibly conflicting with 26 U.S.C. § 151). There exists a host of protections, not only for the benefit of the debtors, but for the benefit of all constitu- ent parties including the FCC, designed to ensure the rational, systematic and equitable reorganization of this estate. Self-help repossession by ambush is not one of them -- it is repugnant to the very essence of the Bank- ruptcy Code. III. The January 12 Declaration of automatic cancellation is barred by the doctrines of equi- table estoppel and waiver The January 12 Declaration and the FCC’s position on this motion are confounded by the FCC’s pnor course of conduct and statements throughout these pro- ceedings. Consider, for example, the following FCC quotations (emphasis supplied in each quotation): e As early as July 13, 1998, the FCC argued: “The bankruptcy code also excepts from its automatic stay provisions ‘the commencement or continuation of an action or proceeding by a gov- ernmental unit to enforce such governmental unit’s police or regulatory power.’ 11 U.S.C. § 362(b)(4). Under this provision, however, an agency’s enforcement of a final regulatory order against a bankrupt is subject to the automatic stay, and the bankrupt retains its right to chal- lenge any such order in the appropriate forum. See Board of Governors of the Federal Reserve Sys. v. MCorp Financial, Inc., 502 U.S. 32, 41, eeeEEEeEEeOOee 73a 44-45, 112 S. Ct. 459, 116 L. Ed. 2d 358 (1991). Thus, despite the necessary dismissal of this ad- versary proceeding for lack of subject matter ju- risdiction, NextWave will still enjoy bankruptcy protection from collection of C block license payments pending reorganization of its business affairs. See NLRB v. 15th Avenue Iron Works, Inc., 964 F.2d 1336, 1337 (2d Cir. 1992).’”13 e Because the FCC provided certain confidential information to WG&M, WG&M should also be disqualified from defending NextWave against any motion by the FCC to lift the automatic stay for the purposes of revoking NextWave’s C block licenses.14 e “Mr. Alter: The motion that is being made by the Federal Communications Commission is not by any means to bar this debtor from getting re- lief in bankruptcy. During the pendency of the bankruptcy, the Bankruptcy Court and the auto- matic stay would hold the creditors at bay, in- — the Federal Communications Commis- sion.” e “[Mr. Alter]: The regulations provide that upon failure to make the payments the license is auto- 13Memorandum of Law in Support of FCC’s Motion for Mandatory Withdrawal of the Bankruptcy Court Reference and Dismissal of NextWave’s Adversary Proceeding (Adver- sary Doc. No. 5) (the “Dismissal Memorandum”) at 18 n.5. 14Memorandum of Law in Support of FCC’s Motion to Disqualify Weil Gotshal & Manges as NextWave’s Counsel dated July 22, 1998, at 21-22 n.5. 15Transcript of Proceedings before the District Court, November 9, 1998, at 5. 74a matically cancelled. That hasn’t (happened) in this case due to the automatic stay ....”'6 e “Mr. Alter:.... [T]hey (NextWave] are still quite a substantial company and [the FCC has] not challenged their payment obligation under the F-block license. There is no trigger for the automatic cancellation that I understand to date with regard to the F-block licenses. As 1 under- stand it, if they can comply with their payment obligations, they may well be in a position to re- organize around their F-block property.’”!7 e “[T]he radio spectrum licenses (the “Licenses’’) issued by the FCC to the NextWave Debt- ors ... would be transferred directly to Nextel or one or more of its subsidiaries identified by Nextel in its transfer application relating to the Licenses... . 18 e “To provide the consideration for the transfer of substantially all of the assets of the NextWave Debtors, including the Licenses, to Nextel... . ”!9 e “The approval of the transfer of the NextWave Debtors’ assets to Nextel . . . will be submitted to 16Transcript of proceedings before the Bankruptcy Court, November 12, 1998, at 30. The transcript erroneously attributed this quotation to the Court. 17Transcript of proceedings before the Bankruptcy Court, May 26, 1999, at 17. 18Term Sheet for Comprehensive Settlement Agreement and Joint Plan of Reorganization (“Term Sheet”) dated Au- gust 10, 1999, p 1 at ¢ I(B). 19Term Sheet p. 4 at § III(A). 75a and subject to the approval of the Bankruptcy Court.””20 e “This letter responds to your letter of September 9, 1999, which requested additional information on the agreement reached between the FCC staff, the Department of Justice (“DOJ”) and Nextel on the terms under which the government would support an alternative bankruptcy reorganization plan proposed by Nextel Communications, Inc., (“Nextel”) for the PCS licenses now held by NextWave Personal Communications, Inc. (“NextWave’”). * * * As reflected in the term sheet, if the bankruptcy court approves the Nextel plan, then the FCC’s General Counsel agreed to recommend that the full Commission grant a waiver of the C and F block eligibility rules to allow a transfer of NextWave’s licenses to Nextel pursuant to a court-approved reorganization plan.”2! e “The Federal Communications Commission. (“FCC”) respectfully submits this memorandum of law in support of its motion pursuant to 11 U.S.C. § 362 (d)(1) (“section 362(d)(1)”) and Rule 4001 of the Federal Rules of Bankruptcy Procedure for an order lifting the automatic stay in the above captioned bankruptcy case, which is currently in place pursuant to 11 U.S.C. § 362(a). * * x 20Term Sheet p. 6 at ¥ III(D). 21Letter dated September 27, 1999 from the FCC Chairman to Representative Tom Bliley. 76a Accordingly, the FCC respectfully submits that “cause” exists under section 362(d)(1) for the Court to lift the automatic stay so that the regula- tions’ automatic cancellation provisions may take effect.”22 Aside from these and many other similar oral and written statements by the FCC, the FCC’s entire course of conduct (i.e., what the government did, and did not do) nght up to the January 12 Declaration is consistent with only one set of assumptions: NextWave “would en- joy bankruptcy protection from collection of C block license payments pending reorganization of its business affairs”; the automatic stay would “hold the creditors at bay, including the [FCC]”; the automatic stay, “currently in place,” precluded the automatic cancellation of NextWave’s licenses without prior application to the Bankruptcy Court; NextWave continues to hold the li- censes as part of its assets which the FCC negotiated to transfer to Nextel under a “Term Sheet for Comprehen- sive Settlement Agreement and Joint Plan of Reorgani- zation.” All parties in interest, including the FCC, conducted themselves in a way which clearly demonstrated reliance upon these assumptions. Consider the following: e Nearly $10 million has been expended by law- yers and other professionals for the parties (not including the FCC). e NextWave engaged in an entire trial of and sub- sequent appeals in the Adversary Proceeding (in- cluding to the Second Circuit). 22May 28, 1999 Memorandum of Law in Support of FCC’s Motion to Lift Automatic Stay at 1-2. 77a ¢ Approval of the Disclosure Statement, solicita- tion of creditors, the original scheduling of con- firmation and its stay by the Second Circuit took place. e DIP Lenders have extended $35 million credit secured by assets including the F Licenses relying upon prior representations and conduct of the FCC. ¢ The Official Creditor’s Committee, which represents more than $500 million of creditors “relied extensively upon those representations [by the FCC] in conducting itself in these cases. The Committee represents that had it any inkling that the FCC viewed the licenses as subject to auto- matic cancellation for non-payment, it would cer- tainly have sought judicial determination of this issue before the first payment was past due.23 ¢ “Had the Debtors and their creditors known that they would forfeit almost $500 million in License downpayments and the Licenses, thus wiping out any chance for recovery on the hundreds of mil- lions in claims, by failing to make interest pay- ments on pre-petition debt in bankruptcy, they would have made every effort to come up with the pioaey while the reorganization effort contin- ued”. 23Statement of the Official Creditor’s Committee in Support of, and Joinder in, Order to Show Cause Against FCC for Enforcement of the Automatic Stay with Respect to the Debtor’s C and F Block Licenses, 4 at 7. 24Debtor’s Reply Brief in Support of Grder to Show Cause Against the FCC for Enforcement of the Automatic Stay with Respect to the Debtors’ C and F Block Licenses (“Debtor’s Reply Brief’) at 27. 78a e Extensive litigation with Nextel, some of which remains pending, resulted from the Term Sheet between Nextel and the FCC looking to the trans- fer of NextWave’s Licenses to Nextel. While courts have expressed reluctance to apply the doctrine of equitable estoppel to government in situa- tions where government is acting in its sovereign capac- ity, the same rationale does not hold where, as here, government is acting in a commercial capacity. For ex- ample, in Federal Deposit Insurance Corp. v. Sarandon, Case No. 91 Civ. 5109, 1992 WL 36132 (S.D.N.Y. Feb. 19, 1992), the court made this distinction clear: The rule of no estoppel against the government, as articulated in Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 384, 68 S. Ct. 1, 92 L. Ed. 10 (1947), may be better described as a rule of no estoppel against the government when the gov- ernment acts in its sovereign capacity rather than in a commercial capacity. When the FDIC sues to collect on a promissory note it is acting in a commercial and not in a sovereign capacity, and should be as vulnerable as any other litigant to principles of estoppel when it acts in a fashion that prejudices private citizens. Similarly, the court in Federal Deposit Insurance Corp. v. Harrison, 735 F.2d 408 (11th Cir. 1984), found that the FDIC was acting as a commercial creditor in its efforts to collect payment on certain notes and stated: Proprietary governmental functions include es- sentially cormmercial transactions involving the purchase or sale of goods and services and other activities for the commercial benefit of a particu- lar government agency. Whereas in its sovereign role, the government carries out unique govern- mental functions for the benefit of the whole pub- lic, in its proprietary capacity the government’s 79a activities are analogous to those of a private con- cern. As stated by the Supreme Court in Dickerson v. Col- grove, 100 U.S. 578, 580, 25 L. Ed. 618 (1879): The estoppel here relied upon is known as an eq- uitable or estoppel in pais. The law upon the sub- ject is well settled. The vital principle is, that he who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disap- pointing the expectations upon which he acted. Such a change of position is sternly forbidden. It involves fraud and falsehood, and the law abhors both. This remedy is always so applied to pro- mote the ends of justice .... It accomplishes that which ought to be done between man and man The FCC argues that estoppel may apply to the gov- ernment “only in those limited cases where the party can establish both that the Government made a misrep- resentation upon which the party reasonably and detri- mentally relied and that the Government engaged in af- firmative misconduct,” citing Drozd v. ILN.S., 155 F.3d 81, 90 (2d Cir. 1998) and City of New York v. Shalala, 34 F.3d 1161 (2d Cir. 1994). However, these cases are readily distinguishable in that the plaintiffs there sought to estop government agencies from acting in their regu- latory capacity. Where the government acts in a com- mercial capacity, as in the instant case, equitable estop- pel is appropriate with or without findings of misrepre- sentation. Indeed, the notion of “misconduct” is beside the point. What is important here is that the FCC acted one way for more than a year, and parties spent or loaned millions assuming that it meant what it said. Reliance was both reasonable and inevitable. Equitable estoppel 80a will operate to prevent irrevocable harm from such a radical change of position as the January 12 Declaration. As to waiver, “bankruptcy courts as courts of equity, should look with disfavor on contract forfeitures, espe- cially if forfeiture would imperil a debtor’s reorganiza- tion efforts. There is a tendency to overlook a failure to comply strictly with the terms of a contract when the parties by their conduct, have tolerated deviations in per- formance.” See Jn re Photo Promotion Assocs., Inc., 45 B.R. 878, 882 (S.D.N.Y. 1985). The law recognizes that the government, like any other contracting party, must give reasonable notice of any new compliance schedule if it chooses to unilater- ally impose such a schedule. See, e.g., Bailey Special- ized Bldgs., Inc. v. United States, 186 Ct. Cl. 71, 404 F.2d 355, 359 (1968).25 Such a waiver by one with au- thority will estop the government and the requirement cannot be suddenly revived to the prejudice of a party who has changed his position in reliance on the sup- posed suspension. Gresham & Co. v. United States, 200 Ct. Cl. 97, 470 F.2d 542, 555 (1972). See also Miller Elevator Co., Inc. v. United States, 30 Fed. Cl. 662, 688 (1994). 25See also Glen T. Carberry & Phillip M. Johnstone, Waiver of the Government's Right to Terminate For Default In Government Defense Contracts, 17 PUB. CONT. L.J. 470, 478-81 (1988). In addition, implied waiver can occur when there is (1) failure to terminate within a reasonable time after the default under circumstances indicating forbearance, and (2) reliance by the contractor on failure to terminate and con- tinued performance by him under the contract, with the gov- ernmment’s knowledge and express or implied consent. See DeVito v. United States, 188 Ct. Cl. 979, 413 F.2d 1147, 1154 (1969). 8la In recognizing that waivers are applicable against the government, the D.C. Circuit has held that where, as here a government official has authority to waive the regulations allegedly violated [pursuant to its dis- cretionary authority], “we look instead to the standards of waiver that would govern between private parties.”. .. Thus when, in the course of making an agreement, an official with power to waive a regulation that would bar the agreement acts in a way that signals to a private party an ob- jective intent to waive the regulation, and the pri- vate party relies on that behavior, the government official is estopped from voiding the agreement on the basis of the regulation. Cinciarelli v. Reagan, 729 F.2d 801, 807-08 (D.C. Cir. 1984) (emphasis added). Branch Banking & Trust Co. v. United States, 120 Ct. Cl. 72, 98 F. Supp. 757, 766, cert. denied, 342 U.S. 893, 72 S. Ct. 200, 96 L. Ed. 669 (1951). The FCC has the power and discretion to waive timely payment. The FCC acted in a way which said expressly and by implication that payments were sus- pended during NextWave’s Chapter 11. NextWave and other parties acted in reliance. It has been held that the FCC must consider the im- pact of its actions upon innocent creditors in assessing public interest with respect to FCC licenses. Second Thursday Corp., 22 F.C.C.2d 515, 516 (1970); LaRose v. FCC, 494 F.2d 1145, 1146 & n.6 (D.C. Cir. 1974) (“[a]dministrative agencies have been required to con- sider other federal policies, not unique to their particular area of administrative expertise, when fulfilling their mandate to assure that their regulatees operate in the public interest”). In the present case, a decision to de- clare that the debtors’ licenses were automatically can- celled one year ago, in the face of prospective full pay- 82a ment and immediate deployment, arbitrarily leaves the creditors and shareholders of these estates -- represent- ing $1.047 billion of claims -- with little if any chance for recovery. On the undisputed facts, the FCC has waived its “timely payment” requirement. Ultimately, NextWave must comply with the “payment in full” requirement, or the Licenses will be cancelled. But the debtors must be granted due process and their day in court under the Bankruptcy Code and a fair opportunity to pay their debt to the FCC in a confirmed Plan. IV.No regulatory purpose countenanced by the governing statute is served by the “timely pay- ment” requirement The Court of Appeals has held that there is a “regula- tory” aspect in the FCC’s “payment in full” requirement. But no such aspect can be inferred with respect to the FCC’s “timely payment” requirement. No rational ex- planation has been offered to show that timeliness has any, ouyective other than pure debtor-creditor econom- ics. What has been completely overlooked in the FCC’s regulatory aspect contentions is that they conflict with the spirit and the letter of the agency’s governing statute. 26If the “timely payment” requirernent served a bona fide regulatory objective, one must wonder what was the im- pact on that objective of the FCC’s March and April 1997 orders indefinitely suspending all payments for C and F block licensees, the FCC’s numerous regulations, orders, no- tices and instructions rescheduling and repeatedly changing payment deadlines, and the FCC’s repeated grant of waivers of payment defaults by other spectrum licensees. And how does that impact differ from the impact of the NextWave de- lay in payment? 83a The FCA does not mandate that the FCC should seek to extract maximum consideration for PCS licenses. To the contrary, Congress has specified as one of four basic objectives of spectrum auctions “(C) recovery for the public of a portion of the value of the public spectrum resource.” 47 U.S.C. § 309(j)(3)(C). The statute goes further and expressly precludes the FCC from basing regulatory determinations on revenue considerations. FCA § 309(j)(7)(A) and (B), under the heading “Con- sideration of revenues in public interest determinations,” provides as follows: (A) Consideration prohibited In making a decision pursuant to section 303(c) of this title to assign a band of frequencies to a use for which licenses or permits will be issued pursuant to this subsection, and in prescribing regulations pursuant to paragraph (4)(C) of this subsection, the Commission may not base a fina- ing of public interest, convenience, and necessity on the expectation of Federal revenues from the use of a system of competitive bidding under this subsection. E (B) Consideration limited In prescribing regulations pursuant to paragraph (4)(A) of this subsection, the Commission may not base a finding of public interest, convenience, and necessity solely or predominantly on the ex- pectation of Federal revenues from the use of a system of competitive bidding under this subsec- tion. 47 U.S.C. § 309(j)(7)(A), (B); emphasis supplied.27 27The words “public interest,” “convenience” and “ne- cessity” obviously refer to the FCC’s regulatory jurisdiction. 84a Paragraph (7)(A) applies to the FCC in its function of assigning or allocating spectrum, and it prohibits the FCC from exercising that regulatory function based on “the expectation of Federal revenues.” Paragraph (7)(B) governs the FCC in prescribing regulations pursuant to paragraph (4)(A). Paragraph (4)(A) provides as follows: (4) Contents of regulations In prescribing regulations pursuant to paragraph (3), the Commission shall - - (A) consider alternative payment schedules and methods of calculation, including lump sums or guaranteed installment payments, with or without royalty payments, or other schedules or methods that promote the objectives described in para- graph (3)(B), and combinations of such schedules and methods; 47 U.S.C. § 309(j)(4)(A); emphasis supplied. Thus, Congress has ordered the FCC in Section 309(j)(4)(A) to “consider alternative payment sched- ules” to accomplish the legislative objectives, while in Section 309(j)(7)(B) Congress specifically prohibited the FCC from prescribing such regulations having a regulatory purpose “solely or predominantly on the ex- pectation of Federal revenues.” Certainly the statute contemplates that the FCC prescribe regulations respect- ing the installment payments called for by the legisla- tion. But Congress has made clear that the expectation of revenue, i.e., debtor-creditor economics, may not in- form the FCC’s regulatory equation. Precisely the same issue has arisen in the context of Section 362(b)(4) of the Bankruptcy Code, and the courts have uniformly drawn the distinction between administrative proceed- ings or actions that are regulatory in nature and those that are purely economic. See discussion under point I.D, above. 85a The FCC is bound by the statute from which it de- rives its jurisdiction. “It is a fundamental principle of American law that legislative statutes take precedence over conflicting administrative regulations.” Furlow v. United States, 55 F. Supp. 2d 360, 364 (D. Md. 1999); Caldera v. J.S. Alberici Const. Co., 153 F.3d 1381, 1383 (Fed. Cir. 1998) (“Statutes trump conflicting regula- tions”); Wolf Creek Collieries v. Robinson, 872 F.2d 1264, 1267 (6th Cir. 1989) (“statutory language . . . pre- vail[s] over inconsistent regulatory language”); Bukala v. U.S., 854 F.2d 201, 203 (7th Cir. 1988) (“an agency’s interpretation of a statute ... , cannot supersede statu- tory language”); Johnson v. Heckler, 769 F.2d 1202, 1212 (7th Cir. 1985); Pacific and Gas Elec. Co. v. U.S., 664 F.2d 1133, 1136 (9th Cir. 1981) (“a regulation which operates to create a rule out of harmony witk the statute is a mere nullity”) (citing Manhattan Gen. Equip. Co. v. C.I.R., 297 U.S. 129, 134, 56 S. Ct. 397, 80 L. Ed. 528 (1936); U.S. v. Gordon, 638 F.2d 886, 888 (5th Cir. 1981) (“whatever effect the agency regulation may have under other circumstances, it cannot supersede a statute applicable to those present here”). Nor can the FCC’s regulations override the Bankruptcy Code. United States v. Shumway, 199 F.3d 1093, 1104-05 (9th Cir. 1999); Freeman v. City of Mobile, 193 F.3d 1179 (11th Cir. 1999) (agency cannot amend or supplant an act of the legislature). Finally, one must ask whether there is any regulatory concern of such consequence that it should override the protections and policy considerations that lie at the very core of the Bankruptcy Code, or bar the jurisdiction of the Bankruptcy Court from enforcing the Code. What regulatory principle or public interest does the FCC in- voke to outweigh the investment in these debtors of over $1 billion in debt and equity? What public policy is served by an act of the United States Government which violates basic notions of equity, due process and the _ Bankruptcy Code? What purpose is served by the FCC’s relinquishment of over $4.7 billion for the C Licenses? 86a How does the January 12 Declaration coexist with 47 U.S.C. § 309(j)(3)(A) looking to “rapid deployment” of spectrum “without administrative or judicial delays,” or 47 U.S.C. § 309G)(7)(A) and (B) prohibiting the FCC from exercising its regulatory discretion “on the expec- tation of Federal revenues?” The FCC cannot, either by its regulations or its inter- pretation of its regulations, supervene either the Federal Communications Act or the Federal Bankruptcy Code. Where those regulations or the agency’s interpretation thereof conflict with either the FCA or the Bankruptcy Code, the will of Congress as expressed in the statutes must prevail. V. The Circuit Court Decision does not address the issues presented on this motion Little need be said of the FCC’s contention that the instant motion is governed by the Second Circuit Deci- sion. Ultimately, it will be for the Court of Appeals to resolve this controversy, if the parties do not sooner set- tle it among themselves. In the meantime, the matter has been remanded to the Bankruptcy Court, and it is the responsibility of this Court to address the issues raised by this motion for review by the District and Circuit Courts. The Court of Appeals rulings in respect of NextWave I, concerning subject matter jurisdiction, and NextWave IT, concerning fraudulent conveyance analysis, are the law of the case in these proceedings. But they do not touch upon the issues now before this Court, which arise from a subsequent event, the January 12 Declaration. Indeed, in remanding to the Bankruptcy Court, the Court of Appeals specifically referred to the possibility that the FCC might, in the future, seek to revoke the Licenses (see footnote 4, above). The FCC relies upon the statement in the Circuit Court Decision that “the FCC made ‘full and timely payment of the winning bid’ a regulatory condition for 87a obtaining and retaining spectrum license” (200 F.3d at 52). However, the very next sentence states: “This ‘payment in full’ requirement has a regulatory purpose ...” (id.), and the entire balance of the Circuit Court Decision bearing on the question of regulatory purpose and subject matter jurisdiction is concerned solely with the “payment in full” requirement, which was the only matter before the Court. The Court of Appeals did not consider the question whether the “timely payment” re- quirement was invested with a regulatory purpose, be- cause the FCC had never asserted any legal position based upon NextWave’s failure to make post-petition payments on its pre-petition claims. Conclasion For the foregoing reasons, the debtors’ motion is granted. Counsel for NextWave will prepare forthwith an order consistent with this decision, fax it to counsel for the FCC for approval as to form (without prejudice to appeal) and submit it to this Court. In accordance with the Court of Appeals’ order of January 24, 2000, ruling upon the FCC’s “Emergency Motion for a Stay of Bankruptcy Court Proceedings and Leave to File a Mandamus Petition,” confirmation of any Plan of reorganization is stayed pending further or- der of the Court of Appeals. This Court admonishes the parties to cooperate in seeking expedited review on ap- peal in order that these Chapter 11 cases may be brought to a conclusion without unnecessary prejudice to the debtors’ estates and the public interest entailed in further delay. © APPENDIX A 88a The Alleged “Default” The FCC maintains that the debtors’ Licenses auto- matically and retroactively ceased to exist at some point in late 1998 or January 1999 as a result of a “default” by NextWave citing 47 C.F.R. § 1.2110(f)(4)(iv).78 Yet the FCC cannot answer the most basic question as to the date of the default, the amount of the default, or the documents which might have apprised the debto:s of the then impending default and forfeiture. As shown below, the answers to these questions are completely unclear. Notice of the Alleged Default The first issue, reading from 47 CFR. § 1.2110(f)(4)(iv), is whether the debtors were ever given any notice of a default, because some form of no- tice of default, at the very least a declaration, is required by the phrase “will be declared in default.” At argument the FCC was extensively questioned as to whether any notice of default was given. Conceding that no notice was given to the debtors other than the January 12 Declaration, the FCC instead argued that it had published policy statements in its record which con- structively gave notice of default and automatic cancel- lation under 47 C.F.R. § 1.2110(f)(4)(iv). (These pub- lished statements are addressed below.) 28Subsection (iv) provides: Any eligible entity that submits an installment payment after the due date but fails to pay any late fee, interest or principal at the close of the 90-day non-delinquency period and subsequent automatic grace period, if such a grace period is available, will be declared in default, its license will auto- matically cancel, and will be subject to debt collection proce- dures. (emphasis supplied). 89a Moreover, the FCC also maintained that it was not required to specifically notify the debtor of the default, that under the regulation default occurred automatically despite the language “will be declared in default,” and that it was incumbent on the debtors, before a “default” occurred, to seek an extension or waiver before any dis- cretion of the FCC could be invoked. The FCC did, however, give other parties notice of their payment de- faults.29 The FCC did not do so in this case. Its argu- ment that the January 12 Declaration served as notice of default is little better than a post hoc rationalization for the failure to provide the same notice to the debtor it ex- tended to other licensees. The fact is that the FCC sim- ply ignored 47 C.F.R. § 1.2110(f)(4)(iv)’s direction that a default “will be declared.” The Date of the Alleged Default The FCC is unable to specify a date for the debtors’ alleged default. The FCC’s position in its objection to confirmation and in its brief is that a default occurred 29See e.g., In re Roberts-Roberts & Assocs., 12 F.C.C.R. 1825, 1997 WL 43121 (Feb. 4, 1997) (granting waiver of downpayment rules for incorrect payment after notice of de- linquency issued); Jn re Southern Communications Systems, Inc., 12 F.C.C.R. 1532, 1997 WL 43127 (Feb. 4, 1997) (waiver of late payment default where payment made one day late and upon notice of delinquency); Jn re Longstreet Communications Int’l., Inc., 12 F.C.C.R. 1549, 1997 WL 43114 (Feb. 4, 1997) (waiver of late payment default where payment made nine days late and upon notice of delin- quency); Jn re RFW, Inc., 12 F.C.C.R. 1536, 1997 WL 43097 (1997) (waiver of late payment default where payment made six days late and upon notice of delinquency); Jn re Wireless Telecommunications Co., 12 F.C.C.R. 1544 (Feb. 4, 1997) _ (waiver of late payment default where payment made tw days late and upon notice of delinquency). ; 90a sometime (variously) in late 1998 or January 1999, while the January 12 Declaration only recites a delin- quency more than 90 days after July 31, 1998. The FCC relies on the provisions of the installment payment “Re- structuring Orders” to support its vague assertion of a default date at some point in January 1999. To appreciate these Restructuring Orders, some his- tory of the regulatory sequence is necessary. On March 31, 1997, the FCC issued an order which sus- pended the installment payment obligations of C block licensees “until further notice,” although interest contin- ued to accrue during the suspension. Jn the Matter of Installment Payments for PCS Licenses, 12 F.C.C.R. 17325, 1997 WL 144207 (1997). A corresponding sus- pension was issued for F block licensees on April 28, 1997. The suspension was lifted in a September 25, 1997 “restructuring” order, Jn the Matter of Amendment of the Commission’s Rules Regarding Installment Payment Fi- nancing for Personal Communication Services (PCS) Licensees, 12 F.C.C.R. 16436, (Sept. 25, 1997) (the “First Restructuring Order”), and modified in two sub- sequent orders, Jn the Matter of Amendment of the Commission’s Rules Regarding Installment Payment Fi- nancing for Personal Communication Services (PCS) Licensees, 13 F.C.C.R. 8345, 1998 WL 130176 (March 23, 1998) (the “Second Restructuring Order’’), and Jn the Matter of Amendment of the Commission’s Rules. Regarding Installment Payment Financing for Personal Communication Services (PCS) Licensees, 14 F.C.C.R. 6571, 1999 WL 183822 (March 31, 1999) (the “Third Restructuring Order”, collectively the three are referred to as the “Restructuring Orders”). The First Re- structuring Order instituted the resumption of install- ment payments for C and F block licensees as of March 31, 1998 and instituted an automatic 60-day grace period (payment date of May 30, 1998). 12 F.C.C.R. 16436 at 925. The First Restructuring Order 9la further set out three options to resumption of payments originally due for C block licenses, with an election to be made by June 8, 1998. The Second Restructuring Order modified the options available to C block licen- sees, changed the automatic 60-day grace period to a 90- day period, and reset the payment resumption date from March 31, 1998 to a date 90 days after publication of the Second Restructuring Order in the Federal Register, with a 5% late payment fee due for amounts paid within this period. 13 F.C.C.R. 8345 at 996, 15. The Third Restructuring Order did not alter these due dates. In a confusing series of rulings, the FCC delayed the issuance of a final installment payment resumption date, finally setting it for July 31, 1998. 13 F.C.C.R. 7413, 1998 WL 180790 (April 17, 1998) (“Installment pay- ments for broadband PCS C and F block licensees will - resume on July 31, 1998. On that date, licensees are re- quired to pay accrued interest from April 1, 1998, through and including July 31, 1998, plus one-eighth of their Suspension Interest. Payments received after July 31, 1998, but on or before October 29, 1998, must in- clude a late payment fee equal to 5% of the amount that was due on July 31, 1998.”). In the meantime, amendments to 47 C.F.R § 1.2110 became effective on March 16, 1998 which both modi- fied and incorporated some of the terms of the First and Second Restructuring Orders. However, the FCC only released an interpretive guidance document some six months later in the September 18, 1998 Wireless Tele- - communications Bureau Provides Guidance on Grace Period and Installment Payment Rules, 13 F.C.C.R. 18213, 1998 WL 639381 (September 18, 1998) (the “Guidance Notice”). The Guidance Notice instructs: The Commission recently amended 47 C.F.R. § 1.2110 to provide that licensees that do not make an installment payment on or before a due date are automatically granted a 90 day grace pe- riod (“non-delinquency period”) and assessed a 92a late fee equal to 5 percent of the missed install- ment payment (“late fee”). Jf remittance of the missed installment payment and the 5 percent late fee is not made on or before expiration of the non-delinquency period, a second 90 day period (“grace period”) is automatically granted and an additional late fee equal to 10 percent of the missed installment payment is assessed. Licen- sees are not required to make an application to ‘the Commission to receive the non-delinquency period or the grace period. Furthermore, licen- sees are not required to remit the 5 percent late fee prior to the expiration of the non-delinquency period to be eligible for the grace period. Late fees accrue on the first business day after a missed installment payment and upon the expira- tion of the non-delinquency period. Specifically, under the revised rule, a licensee must pay the missed installment payment, the 5 percent late fee, the 10 percent late fee (if appli- cable) and-any lender advances the licensee may be obligated to pay (including but not limited to Uniform Commercial Code filing fees and attor- ney fees for debt collection). This payment must be made in full, in one payment, before the expi- ration of the non-delinquency period or grace pe- riod. Payments made during a non-delinquency period or a grace period shall be applied in the following order of priorities: (i) lender advances (ii) late fees (iii) interest payable and (iv) princi- pal owed. Any licensee that becomes more than one- hundred eighty (180) days delinquent on an in- stallment payment shall be in default, and the li- cense shall automatically cancel without further action by the Commission. In that event, the debt shall be transferred to the Department of Treas- 93a ury for collection subject to the Debt Collection Improvement Act of 1996. Payment due dates for missed installment pay- ments and accompanying late fee(s) are inde- pendent of the regular installment payment schedules. Licensees should be aware that the late payment provisions are calculated on a 90 calendar day basis, while installment payments are based on a quarterly payment schedule. Quarterly payments may cover up to 92 calendar days, depending upon the month in which the payment is due. In many instances, missed in- stallment payments and accompanying late fee(s) may be due before the next quarterly installment payment. Payments of missed installment pay- ments and accompanying late fee(s) must be made simultaneously and in a timely manner. Partial payments will not be sufficient to avoid default. (emphasis supplied) According to the Guidance Notice, the operative grace period for installment payments should be 180 days from the modified resumption date (July 31, 1998), or January 28, 1999. However, the Guidance Notice was not released until well after the April 17 revision of the resumption date to July 31, 1998. Assuming that a li- censee would have found this public notice, any licensee in September of 1998 would have faced interpretive guidance relating to a potential default date of July 31, 1998, established five months earlier on April 17 and extending the previous due date of March 31 which it- self was established on March 23 in the Second Restruc- turing Order, only to find himself within a grace period extending until October 28 (then only a month or so away), which was established by implication on March 16 in the amendments to 47 C.F.R. § 1.2110 and could only be determined with reference to the April 17 order, with a possible second grace period assessing a doubled penalty rate to run for an additional 90 days. 94a Of course, the foregoing analysis may not accord with the FCC’s contemporaneous or post hoc interpreta- tions of its regulations, or indeed possibly some other regulations this Court has not found, even after its own diligent computer search through the often vague and conflicting flotsam of FCC releases. It certainly does not accord with the representations made to this Court by the FCC. The FCC in its memo- randum claims October 31, 1998 as the deadline, citing to In the Matter of Amendment of the Commission’s Rules Regarding Installment Payment for Personal Communications Services (PCS) Licenses, Order on Consideration of Second Report and Order, 13 F.C.C.R. 8345 at 915, 21-30, 1998 WL 130176 (March 24, 1998). Yet, this date is completely inconsistent, from this Court’s reading, with the later-issued Guidance No- tice. The only thing that is clear is that, whatever the putative default date was, it was a moving target. As daunting as it has been for this Court to attempt to re- construct this sequence well after the fact, it would have been beyond perplexing for a licensee at the time to fix any reasonable notion of what obligation was due when. Not surprisingly, in this contested matter the FCC has been unable to articulate any date upon which the debtor’s installment obligations were due, even noting that their calculation of January 1999 was in part in- formed by the 60-day extension provision of Bankruptcy Code Section 108. Subtracting 60 days from January 1999 results in some date in November 1998, for which no support exists in the regulations. Add to this the fact that the debtor filed its petition in June of 1998, in the midst of miasma of conflicting, shifting deadline amendments, and there is little surprise that FCC coun- sel at the hearing was able to identify a date certain for a default. Even assuming, say, that January 28, 1999 were the correct date for the expiration of any applicable grace period, it does not follow that a “default” occurred. 95a Payment obligations were suspended until July 31, 1998, but the debtors filed their petition on June 8, 1998. Thus the suspension was in effect when the debtor com- menced this case. No obligation was then due. Under _ the grace period regulations, no obligation would have been due, this Court assumes in the absence of any other cogent explanation, until January 28, 1999. The FCC’s claimed default date calculation, which falls sometime in either of October or November 1998 excluding any effect of Section 108, is utterly inconsistent with its guidance documents which would have putatively granted grace periods until January 28, 1999. If that is indeed the FCC’s “rough” calculation, the debtors can- not have been in default when the FCC claims it to have been. The debtors’ obligations on the Notes were in- curred as of January 3, 1997 (but executed on February 19, 1997). The March 31, 1997 suspension order sus- pended any installment payment obligations and they were not resumed until July 31, 1998 (at the earliest, al- though interest continued to accrue). Thus, the putative default amounts, if indeed they can be calculated, were entirely post-petition. The legal effect of any putative default or automatic cancellation issuing in the post- petition period is discussed in the main body of this de- cision. The Amount of the Alleged Default What was the amount of the debtor’s alleged default in late 1998 or January 1999? There is no answer. The only documentation of what might have been due, contained in a supplemental submission by the FCC, is a statement to NextWave dated May 26, 1998 of total interest due of $2,474,901.66 for payments com- prising five payments due from 4/30/97 through 3/31/98. How these payments could have been “due” as of May 26, 1998 while the various suspensions and grace peri- ods were in effect is not at all clear, especially in light of the April 17, 1998 extension of the resumption date to July 31, 1998. 96a The Restructuring Orders, the March 16, 1998 amendment to 47 C.F.R. § 1.2110 and the Guidance No- tice do give some guidance as to method of calculation, but the guidance is hopelessly complex and confusing. See First Restructuring Order {J 25-27, (requiring “all payments due and owing on and after March 31, 1998 be made in accordance with the terms of the licensee’s Note, associated Security Agreement, and the Commis- sion orders and regulations,” with all interest accrued over the suspension period becoming due and payable over a two-year period in one-eighth of the amount of suspension period interest payable with each regular in- stallment payment until paid). As to regular installment payments, the First Restructuring order provides: We conclude that it could place a significant bur- den on licensees to require payment of the entire amount of the Suspension Interest on March 31, 1998. We therefore require that broadband PCS C and F block licensees submit one-eighth of the Suspension Interest on March 31, 1998, and one- eighth of the Suspension Interest with each regu- lar installment payment made thereafter until the Suspension Interest is paid in full. After March 31, 1998, payment due dates will conform to those indicated in the Note(s) executed by the li- censees. While the first regular installment pay- ment next made after March 31, 1998 will be pro- rated to account for the resumption of payments on March 31, 1998, all regular installment pay- ments thereafter will be in the amounts shown on the amortization schedule attached to and made a part of each Note, as amended, plus the applica- ble payments of Suspension Interest. For exam- pie, for those licensees granted in September, 1996 whose regular installments occur on March 31, June 30, September 30, and December 31 of each year, the next regular payment due after March 31, 1998, will be due on June 30, 1998, and will include the amount of interest accrued 97a from April 1, 1998, through and including June 30, 1998, plus one-eighth of the Suspension In- terest. The next regular payment will be due on September 30, 1998, and will be due in the amount shown on the amortization schedule at- tached to the Note (i.e., interest from July 1, 1998, through and including September 30, 1998), plus one-eighth of the Suspension“interest. Regular payments will continue on each and every December 31, March 31, June 30, and Sep- tember 30 thereafter until the Note is paid in full. For these licensees, the payment due on Decem- ber 31, 1999, will be the last payment due that in- cludes any amortized Suspension Interest. All payments after that date will continue in accor- dance with the terms of the amortization schedule attached to the Note executed by the licensee. Id. at 27. The Second Restructuring Order made the following changes: ... we will extend to 90 days the automatic 60- day non-delinquency period applicable to pay- ments due on the payment resumption date. As mentioned above, the Commission’s rules allow a 90-day non-delinquency period for all other in- stallment payments. Although we stated in the Second Report and Order that a shorter non- delinquency period was justified in light of the one-year payment suspension, we now believe that it is preferable to make the length of that non-delinquency period consistent with our rule for all other payments ... . Consistent with our rule for all other payments, payments made within this 90-day non-delinquency period will be assessed the 5 percent late payment fee that we recently adopted. ... Therefore, there will be no subsequent automatic grace period for licensees that fail to make payment within the 90-day non- delinquency period. Subsequent payments, due 98a after the initial resumption payment, will be sub- ject to the rules adopted in the Part I Third Report and Order.3? 27. Under this plan, the Suspension Period (as defined in the Second Report and Order) will still end on March 31, 1998. All interest accrued from the date of license grant through March 31, 1998, (i.e., Suspension Interest) will continue to be payable over eight equal payments. Interest accrued from April 1, 1998, through the payment resumption date will be due on the payment re- sumption date, in addition to one-eighth of the Suspension Interest. ... In addition, we instruct the Bureau to modify the payment schedule so that all C and F block installment payments will be due on a quarterly basis, beginning on the payment resumption date. Second Restructuring Order at J] 25-27. The March 16 amendments to 47 C.F.R. § 1.2110, as articulated in the Guidance- Notice, issued only well after the extended re- sumption date of July 31, 1998, once again changed the grace periods along with any applicable charges: The Commission recently amended 47 C.F.R. § 1.2110 to provide that licensees that do not make an installment payment on or before a due date are automatically granted a 90 day grace pe- riod (“non-delinquency period”) and assessed a late fee equal to 5 percent of the missed install- ment payment (“late fee”). If remittance of the missed installment payment and the 5 percent late fee is not made on or before expiration of the non-delinquency period, a second 90 day period 30This refers to the March 16, 1998 amendments to 47 C.F.R. § 1.2110, 63 FR 2315. 99a (“grace period”) is automatically granted and an additional late fee equal to 10 percent of the missed installment payment is assessed. Licen- sees are not required to make an application to the Commission to receive the non-delinquency period or the grace period. Furthermore, licen- sees are not required to remit the 5 percent late fee prior to the expiration of the non-delinquency period to be eligible for the grace period. Late fees accrue on the first business day after a missed installment payment and upon the expira- tion of the non-delinquency period. Specifically, under the revised rule, a licensee must pay the missed installment payment, the 5 percent late fee, the 10 percent late fee (if appli- cable) and any lender advances the licensee may be obligated to pay (including but not limited to Uniform Commercial Code filing fees and attor- ney fees for debt collection). This payment must be made in full, in one payment, before the expi- ration of the non-delinquency period or grace pe- riod. Payments made during a non-delinquency period or a grace period shall be applied in the following order of priorities: (i) lender advances (ii) late fees (iii) interest payable and (iv) princi- pal owed. Guidance Notice, supra. Moreover, the Guidance No- tice stated: Licensees should be aware that the late payment provisions are calculated on a 90 calendar day basis, while installment payments are based on a quarterly payment schedule. Quarterly payments may cover up to 92 calendar days, depending upon the month in which the payment is due. In many instances, missed installment payments and accompanying late fee(s) may be due before the next quarterly installment payment. 100a Id. In other words, although suspension period interest was to be paid along with regular installment payments (when the obligation resumed, but upon which date is not altogether clear), see the quoted provisions of the Restructuring Orders, supra, the Guidance Notice ap- pears to say that some payments may have been due be- fore others. Reading through this sequence of FCC pronounce- ments, one is unable to divine how to calculate what payment would have been due, even assuming that a de- fault date could ‘be determined, which is itself problem- atic. It is also unclear whether the statement in the Sec- ond Reconsideration Order (dated March 24, 1998) that “there will be no subsequent automatic grace period for licensees that fail to make payment within the 90-day non-delinquency period” conflicts with the March 16 amendments to 47 C.F.R. § 1.2110 (see 63 FR 2315 at 2346), as announced in the September 18, 1998 Guid- ance Notice, providing for an second automatic grace period, particularly given that the resumption date was reset to July 31, 1998. Moreover, and significantly, since the FCC cannot determine the amount due, then it can hardly satisfy the necessary precondition of 47 C.F.R. § 1.2110(f)(4)(iv) that “[a]ny eligible entity that submits an installment payment after the due date but fails to pay any late fee, interest or principal at the close of the 90-day non- delinquency period and subsequent automatic grace pe- riod....” There is no calculus of what amounts were due, and no way to determine on a given date whether any late fee, interest payment, interest or principal in fact was due, or whether the alleged default was attrib- utable to late fees, interest or principal. 10la 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 District 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, Bankruptcy 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 102a 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 At- torney, 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, Andrews & Kurth L.L.P., Dallas, TX (Gregory H. Bevel, Mi- chelle V. Larson and James P. Muenker, Of Counsel), for Appellee. David M. Fnedman, Kasowitz, Benson, Torres & Friedman L.L.P., New York, NY, for amicus cu- riae Official Committee of Unsecured Creditors. Anthony A. Dean, Windels, Marx, Davies & 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 lIn re NextWave Personal Communications, Inc., 235 B.R. 314 (Bankr. S.D.N.Y. 1999) (June 16, 1999 decision [Footnote continued on next page] 103a 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 TV.A, 235 B.R. [Footnote continued from previous page] 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. S.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 II); 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). 104a 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(j)(3)(B), (j)(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 105a successful bidders.2, NextWave, a startup company es- tablished to take advantage of the opportunities created by § 309(), 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 § 3094), 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 1996,3 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 2The 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. 3As part of the FCC’s auction rules, bidders were re- quired 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. 106a license or licenses 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 FC 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- 107a 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 on 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 proc- ess, the FCC issued a restructuring order, Jn the Matter of Amendment of the Commission’s Rules Regarding In- stallment Payment Financing for Personal Communica- tions Services (PCS) Licensees, Second Report and Or- der, FCC 97-342, 12 F.C.C.R. 16436 (Oct. 16, 1997), 4The 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. 108a 1997 WL 643811 (F.C.C.) (the “Restructuring Order’’), which offered troubled C-block license holders three mutually exclusive restructuring options, ranging from amnesty -- return of the licenses in exchange for for- giveness 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 FJ 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 Leith iis Aaa eke en na Nite ionic ad le ins baa heeled 109a 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 or- der. Only the first claim is therefore before us. The 110a FCC argued below that the bankruptcy court also lacked subject matter jurisdiction ever 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 .o 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 SThe bankruptcy court applied California, New York, and Washington, D.C. fraudulent conveyance law as the “ap- plicable law,” holding that there was no substantive differ- ence between the laws of the three jurisdictions. See NextWave IV.A, 235 B.R. at 288-89. llla 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 [V.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 Il, 235 B.R. at 276. The court acknowledged that 47 C.F.R. § 1.2104 subjected a winning bidder to a penalty upon default based on the difference between its bid and the high bi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386019_1605%3A1. Public record. Not legal advice.