217 F.3d 125 (2nd Cir. 2000), 992, In re In Re Federal Communications

Docket Nº:992, Docket 99-5063
Citation:217 F.3d 125
Case Date:May 25, 2000
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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217 F.3d 125 (2nd Cir. 2000)


No. 992, Docket 99-5063

United States Court of Appeals, Second Circuit

May 25, 2000

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Mary Jo White, United States Attorney for the Southern District of New York, New York, NY (Daniel S. Alter, Gideon A. Schor, Assistant United States Attorneys, on the brief), for Petitioner.

Donald B. Verrilli, Jr., Washington, DC (Ian Heath Gershengorn, Jenner & Block, Washington, DC; and Deborah L. Schrier-Rape, Gregory H. Bevel, Andrews & Kurth LLP, Dallas, TX, on the brief), for Respondents NextWave Personal Communications Inc. et al.

David M. Friedman, New York, NY (Michael C. Harwood, Robert M. Novick, Kasowitz, Benson, Torres & Friedman LLP, on the brief), for Respondent Official Committee of Unsecured Creditors.

Timothy B. Dyk, Washington, DC (Fordham E. Huffman, Paul E. Harner, Jones, Day, Reavis & Pogue, Washington, DC; Leonard J. Kennedy, Christina H. Burrow, Dow, Lohnes & Albertson, Washington, DC; Kathryn A. Zachem, L. Andrew Tollin, Kenneth D. Patrich, Wilkinson Barker Knauer, LLP, Washington, DC; Michael F. Altschul, Cellular Telecommunications Indus. Assoc., Washington, DC; M. Robert Sutherland, Charles P. Featherstun, David G. Richards, BellSouth Corp., Atlanta, GA; Thomas Sidman, Nextel Communications, Inc., Reston, VA; Jack D. Ellis, Wayne Watts, Carol Tacker, SBC Communications, Inc., San Antonio, TX; and Julie Kane, Jeffry A. Brueggeman, US West Wireless, LLC, Denver, CO, on the brief), for amici curiae Cellular Telecommunications Indus. Assoc., BellSouth Corp., Nextel Communications, Inc., SBC Communications Inc., and US West Wireless, LLC.

Michael E. Wiles, New York, NY (Debevoise & Plimpton, on the brief), for amicus curiae Joseph Littlejohn & Levy Fund III LP.

Kenneth N. Klee, Los Angeles, CA; Carl Felsenfeld, New York, NY; and Jack F. Williams, Jamaica, NY, amici curiae pro se.

Kenneth G. Roberts, New York, NY (Dennis M. O'Dea, Wolf, Block, Schorr & Solis-Cohen LLP; and Norman A. Olch, New York, NY, on the brief), for amici curiae Wireless Pathways, Inc., New Wave, Inc., All Cellular, Inc., SGA, Inc. d/b/a Americom Communications, and Flagship Wireless, Inc.

James Gadsden, New York, NY (Carter, Ledyard & Milburn, on the brief), for amici curiae Global Crossing Ltd. and Liberty Media Corp.

William F. Gray, Jr., New York, NY (Robert S. Appel, Emanuel C. Grillo, Mark Brent Joachim, David A. Sullivan, Salans Hertzfeld Heilbronn Christy & Viener, on the brief), for amicus curiae D&P NextWave Partners, LP.

Alan D. Scheinkman, Westchester County Attorney, White Plains, NY, for amicus curiae County of Westchester.

Before: McLAUGHLIN, JACOBS and SACK, Circuit Judges.

JACOBS, Circuit Judge:

The Federal Communications Commission ("FCC") petitions this Court for a writ of mandamus to the United States Bankruptcy Court for the Southern District of New York (Hardin, B.J.). On February 7, 2000, the bankruptcy court issued an order prohibiting the FCC from re-auctioning spectrum licenses previously held by debtor NextWave Personal Communications, Inc. ("NextWave"). The FCC argues that the bankruptcy court's order violated this Court's mandate, expressed in In re NextWave Personal Communications,

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Inc., 200 F.3d 43 (2d Cir. 1999) (NextWave Appeal), which held that it was beyond the bankruptcy court's jurisdiction "to mandate that a licensee be allowed to keep its license despite its failure to meet the conditions to which the license is subject." Id. at 54.

In our NextWave decision, this panel (1) rejected the bankruptcy court's determination that the FCC's requirement of full payment as a condition for spectrum licensure lacked a regulatory purpose, and (2) reversed a judgment modifying that condition. On remand, the bankruptcy court has (1) determined that the FCC's requirement of timely payment as a licensing condition is without regulatory purpose, and (2) nullified an FCC decision based on an asserted violation of that condition. The FCC contends that the timely-payment requirement (like the full-payment requirement) is (1) a regulatory condition for licensure, (2) within this Court's NextWave mandate, and (3) in any event, outside the limited jurisdiction of the bankruptcy court.

Because we conclude that the bankruptcy court's ruling violates our prior mandate, and that the FCC's licensing decisions are subject to the exclusive jurisdiction of the federal courts of appeals and outside the limited jurisdiction of the bankruptcy court, the petition is GRANTED. We make no comment on the prospects of the (precautionary) appeals filed by NextWave in the Court of Appeals for the District of Columbia Circuit.


A. The previous appeal1

In summer 1996, NextWave was the high bidder at FCC auctions for 63 personal communications services ("PCS") spectrum licenses (the "Licenses"). NextWave's winning bids aggregated $ 4.74 billion. Because NextWave enjoyed the status of a "small business," only ten percent of the amount bid was required to be paid in cash. See 47 C.F.R. § 24.711(b)(3). On February 14, 1997, following some further proceedings to correct NextWave's noncompliance with statutory ownership requirements, the FCC granted the Licenses to NextWave, conditioned upon issuance of a series of promissory notes for the $ 4.27 billion balance of NextWave's obligations. NextWave promptly executed the notes.

By the time these notes were executed, further auctions had been conducted at which similar licenses had been auctioned at prices significantly lower than NextWave's winning bids. Alarmed that as a result it had bid beyond its capacity to obtain financing, NextWave sought relief from the FCC and the Court of Appeals for the District of Columbia Circuit. Those efforts were unsuccessful.2 On June 8, 1999, NextWave filed a bankruptcy petition under Chapter 11 and commenced

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an adversary proceeding against the FCC. See NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications, Inc.), 235 B.R. 263, 267 (Bankr. S.D.N.Y. 1998) (NextWave I).

In the adversary proceeding, NextWave alleged that the transaction by which it was granted the Licenses was a fraudulent conveyance and therefore avoidable under § 544 of the Bankruptcy Code. See 235 B.R. at 269 (citing 11 U.S.C. § 544). The FCC argued that the bankruptcy court lacked subject matter jurisdiction over NextWave's claim because exclusive jurisdiction to review FCC regulatory actions is lodged in the courts of appeals pursuant to 28 U.S.C. § 2342 and 47 U.S.C. § 402. The bankruptcy court rejected this argument, holding that in its effort to collect the full auction price of the Licenses, the FCC was acting solely as a creditor, and not as a regulator. See NextWave I, 235 B.R. at 269-71. The bankruptcy court thus concluded that subject matter jurisdiction was sound and proceeded to try NextWave's claims.

At the conclusion of trial, the bankruptcy court found that at the time the Licenses were granted, they were worth only $ 1.023 billion (determined by comparison to similar licenses auctioned subsequently), and that any obligation in excess of that amount was avoidable as a constructive fraud. See NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications, Inc.), 235 B.R. 277, 304 (Bankr. S.D.N.Y. 1999) (NextWave IV.A). In effect, the avoidance remedy reduced by more than three-quarters the total amount NextWave had bid at auction. See 11 U.S.C. § 544; NextWave IV.A, 235 B.R. at 304; NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications, Inc.), 235 B.R. 305, 306-07 (Bankr. S.D.N.Y. 1999) (NextWave IV.B).

The FCC appealed the bankruptcy court's judgment to the United States District Court for the Southern District of New York (Brieant, J.), which affirmed for reasons substantially the same as those stated by the bankruptcy court. See NextWave Personal Communications, Inc. v. FCC (In re NextWave Personal Communications, Inc.), 241 B.R. 311, 315-16, 319-21 (S.D.N.Y. 1999).3

The FCC appealed to this Court. On November 24, 1999, we issued an order (with opinion to follow) reversing the ruling that NextWave's obligation to the FCC was a fraudulent conveyance, and we remanded the case to the bankruptcy court for further proceedings. See NextWave Appeal, 200 F.3d at 45-46, 62.

Our opinion issued on December 22, 1999. We explained that spectrum licenses (of which PCS licenses form a subset) are distributed by auction because "a method was needed that would direct licenses toward those entities and technologies that would put them to the best use," and because "Congress came to the conclusion that using market forces to allocate spectrum" would best achieve such a distribution. Id. at 51. In authorizing the FCC to develop a system of spectrum auctions, Congress had regulatory objectives, and was not chiefly interested in maximizing license-holders' contributions to the fisc:

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[T]he broader purpose of [ 47 U.S.C. § 309(j), the statutory provision authorizing spectrum auctions,] was to create an efficient regulatory regime based on the congressional determination that competitive bidding is the most effective way of allocating resources to their most productive uses. The FCC was not asked to sell off the spectrum (something it did not own) in an effort to raise as much money as possible; it was not asked to develop a free-market system to maximize revenue. Instead, it was told to auction licenses to the highest bidder because such a system was thought likely to promote the development of new technologies and encourage efficient use of the spectrum, while simultaneously recouping some of the value of the spectrum for the public.

NextWave Appeal, 200 F.3d at 52 (emphasis added; footnote omitted).

Congress mandated that...

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