Federal Communications Commission v. Nextwave Personal Communications, Inc.

PETITIONER: Federal Communications Commission
RESPONDENT: Nextwave Personal Communications, Inc.
LOCATION: 1220 Student Activities Building - Undergraduate Admissions

DOCKET NO.: 01-653
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 537 US 293 (2003)
ARGUED: Oct 08, 2002
DECIDED: Jan 27, 2003

Donald B. Verrilli, Jr. - Argued the cause for the respondents
Jonathan S. Franklin - Argued the cause on behalf of the petitioners Arctic Slope Regional Corp., et al
Laurence H. Tribe - Argued the cause on behalf of Creditors NextWave Communications, Inc., as amicus curiae
Paul D. Clement - Argued the cause on behalf of petitioner Federal Communications Commission

Facts of the case

After the Federal Communications Commission (FCC) auctioned off certain broadband personal communications services licenses to NextWave Personal Communications, Inc., Nextwave filed for Chapter 11 bankruptcy protection and suspended payments to all creditors, including the FCC. The FCC asserted that NextWave's licenses had been canceled automatically when the company missed its first payment-deadline and announced that NextWave's licenses were available for auction. Ultimately, when the FCC denied NextWave's petition for reconsideration of the license cancellation, the Court of Appeals for the D. C. Circuit held that the cancellation violated 11 USC section 525(a), which provides that a "governmental unit may not...revoke...a license...to...a debtor...solely because such...debtor...has not paid a debt that is dischargeable in the case." (Together with No. 01-657, Arctic Slope Regional Corp. et al. v. NextWave Personal Communications Inc. et al.)


Does section 525 of the Bankruptcy Code prohibit the Federal Communications Commission from revoking licenses held by a debtor in bankruptcy upon the debtor's failure to make timely payments owed to the FCC for purchase of the licenses?

Media for Federal Communications Commission v. Nextwave Personal Communications, Inc.

Audio Transcription for Oral Argument - October 08, 2002 in Federal Communications Commission v. Nextwave Personal Communications, Inc.

Audio Transcription for Opinion Announcement - January 27, 2003 in Federal Communications Commission v. Nextwave Personal Communications, Inc.

William H. Rehnquist:

01-653, Federal Communications Commission versus Nextwave Personal Communications and a companion case will be announced by Justice Scalia.

Antonin Scalia:

These cases come to us on writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit.

The Federal Communications Commission awarded Spectrum Licenses to Nextwave Personal Communications and allowed Nextwave to pay for these licenses in installments.

The company subsequently filed for Chapter 11 bankruptcy and suspended payments to all creditors including the FCC.

Its plan of reorganization envisioned repayment of its obligations to the FCC but the FCC objected to the plan asserting that Nextwave's licenses had been cancelled automatically when the company missed its payment deadline.

Nextwave filed a petition with the FCC seeking reconsideration of the license cancellation and upon denial appealed to the D.C. Circuit asserting that the cancellation violated the Bankruptcy Act and thus should be set aside under the Administrative Procedure Act.

The Court of Appeals agreed, we granted certiorari and we now affirm.

The Administrative Procedure Act requires Federal Courts to set aside Federal Agency action that is not in accordance with law.

The question before us is whether the FCCs cancellation violated Section 525 of the Bankruptcy Act which provides in relevant part that “a governmental unit may not revoke a license to person that is a debtor under this Title, solely because such debtor has not paid a debt that is dischargeable” in bankruptcy.

Here the proximate cause for the FCC’s revocation of the licenses was not Nextwave’s failure to make the payments that were due.

That suffices to invoke Section 525.

Contrary to petitioner’s contention, it makes no difference whether the agency has some regulatory motive behind its action in canceling for nonpayment.

When the statute refers to failure to pay a debt as the sole cause of cancellation, it cannot reasonably be understood to include among the other causes whose presence can preclude application of the prohibition, the government unit’s motive in adopting a cancellation for nonpayment rule such a reading would deprive Section 525 of all force since it is hard to imagine a situation in which a governmental unit would not have some further motive behind the rule.

Petitioner’s contend that Nextwave’s license obligations to the Commission are not “within the meaning of 525 debts that are dischargeable in bankruptcy" because they function as regulatory conditions.

We disagree.

Under the Bankruptcy Code, debt is defined to mean liability on a claim and claim in turn is defined to include any right to payment.

In short, a debt is a debt even when the obligation to pay it is also a regulatory condition.

Petitioners also argued that respondent’s obligations are not dischargeable in bankruptcy because it is beyond the authority of Bankruptcy Courts to alter or modify regulatory obligations.

Dischargeability however is not tied to the existence of such authority.

A preconfirmation debt is dischargeable unless it falls within an expressed exception.

Artistically symmetrical with petitioner’s contention that the Bankruptcy Court has no power to alter regulatory obligations is their contention that the D.C. Circuit has no power to modify or discharge a debt.

Just as the former is irrelevant to whether the Bankruptcy Court can discharge a debt, so also the latter is irrelevant to order the D.C. Circuit can set aside agency action that violates law.

The court did not seek to modify or discharge the debt but merely prevented the FCC from violating Section 525.

Finally we reject the contention that our interpretation of Section 525 creates a conflict with the Communications Act.

It does not obstruct the functioning of the Spectrum Auction Provisions since nothing in those provisions demands that cancellation be the sanction for failure to make agreed upon periodic payments.

Indeed, nothing in those provisions even requires the Commission to permit payment to be made over time.

What petitioners described as a conflict boils down to nothing more than a policy preference on the FCC's part for one, selling licenses on credit, and two, canceling licenses rather than asserting security interests in licenses when there is a default.

Such administrative preferences cannot be the bases for denying respondent rights provided by the plain terms of law.

While the FCC retains security interest in these cases, it did not seek to enforce those security interests but opted to eliminate the licenses to the forbidden regulatory step of revoking them.

The question whether Section 525 would also prevent the Government’s enforcement of its security interests is neither presented nor answered today.