254 F.3d 130 (D.C. Cir. 2001), 00-1402, NextWave Personal Commun. v. Fed. Commun. Comm'n

Docket Nº:00-1402 and with 00-1403
Citation:254 F.3d 130
Party Name:NextWave Personal Communications Inc. and NextWave Power Partners Inc., Petitioners v. Federal Communications Commission and United States of America, Respondents Page 131 BellSouth Corporation, et al., Intervenors
Case Date:June 22, 2001
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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254 F.3d 130 (D.C. Cir. 2001)

NextWave Personal Communications Inc. and NextWave Power Partners Inc., Petitioners


Federal Communications Commission and United States of America, Respondents

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BellSouth Corporation, et al., Intervenors

No. 00-1402 and with 00-1403

United States Court of Appeals, District of Columbia Circuit

June 22, 2001

Argued March 15, 2001

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On Petition for Review and Notice of Appeal of Orders of the Federal Communications Commission

Theodore B. Olson argued the cause for petitioners/appellants. With him on the briefs were Thomas G. Hungar, Donald B. Verrilli, Jr., Ian Heath Gershengorn and Lara M. Flint. Miguel A. Estrada entered an appearance.

William H. Crispin, Emanuel Grillo, David Friedman and Kenneth N. Klee were on the brief for amici curiae Senator Robert G. Torricelli, et al. in support of petitioners/appellants.

Daniel M. Armstrong, Associate General Counsel, Federal Communications Commission, argued the cause for respondents/appellee. With him on the brief were Christopher J. Wright, General Counsel, Joel Marcus and Stanley R. Scheiner, Counsel, Jacob M. Lewis and H. Thomas Byron III, Attorneys, U.S. Department of Justice. Stewart A. Block, Counsel, Federal Communications Commission, entered an appearance.

Richard G. Taranto argued the cause for intervenors Cellular Telecommunications Industry Association, et al. With him on the brief were Michael F. Altschul, L. Andrew Tollin, Robert G. Kirk, Craig E. Gilmore, Douglas I. Brandon, Howard J. Symons, Sara F. Leibman, Louis Gurman, Christa M. Parker, John T. Scott III, Mark L. Evans, Lawrence J. Movshin, Michael Deuel Sullivan and H. Richard Juhnke. Matthew R. Sutherland entered an appearance.

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Before: Sentelle, Tatel and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge:

This case concerns the extent to which the Bankruptcy Code limits a federal agency--here, the Federal Communications Commission--acting to implement the provisions of its own statute. Seeking to comply with its statutory duty to ensure small business participation in auctions of broadband PCS licenses, the Commission allowed winning bidders to pay for their licenses in installments. As part of this scheme, the Commission took and perfected security interests in the licenses, and provided for license cancellation should a bidder fail to make timely payments. When appellants, winning bidders on several licenses, declared bankruptcy and ceased making payments, the Commission canceled their licenses. Applying the fundamental principle that federal agencies must obey all federal laws, not just those they administer, we conclude that the Commission violated the provision of the Bankruptcy Code that prohibits governmental entities from revoking debtors' licenses solely for failure to pay debts dischargeable in bankruptcy. The Commission, having chosen to create standard debt obligations as part of its licensing scheme, is bound by the usual rules governing the treatment of such obligations in bankruptcy.


In 1993, Congress amended the Communications Act of 1934 to authorize the Federal Communications Commission to award spectrum licenses "through a system of competitive bidding." 47 U.S.C. § 309(j)(1). In "identifying classes of licenses and permits to be issued by competitive bidding," and in "designing the methodologies" for such bidding, Congress directed the Commission to promote several objectives, including "the development and rapid deployment of new technologies, products and services," the "recovery for the public of a portion of the value of the public spectrum resource made available for commercial use," and the "efficient and intensive use of the electromagnetic spectrum." Id. § 309(j)(3). Congress also directed the Commission to "promot[e] economic opportunity and competition and ensur[e] that new and innovative technologies are readily accessible to the American people by ... disseminating licenses among a wide variety of applicants, including small businesses [and] rural telephone companies." Id. § 309(j)(3)(B). To further this last goal, Congress directed the Commission to "consider alternative payment schedules and methods of calculation, including lump sums or guaranteed installment payments ... or other schedules or methods." Id. § 309(j)(4)(A).

Acting pursuant to this statute, the Commission adopted rules to auction licenses for "broadband PCS"--"personal communications services in the 2 GHz band." In re Implementation of Section 309(j) of the Communications Act, 9 FCC Rcd 5532 p 1 (1994). The Commission expected broadband PCS to "provide new mobile communications capabilities" through "a new generation of communications devices" including "small, lightweight, multi-function portable phones, portable facsimile and other imaging devices, new types of multi-channel cordless phones, and advanced paging devices with two-way data capabilities." Id. p 3. The Commission "determined that the use of competitive bidding to award broadband PCS licenses, as compared with other licensing methods, would speed the development and deployment of new services to

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the public and would encourage efficient use of the spectrum," as required by statute, since "auctions would generally award licenses quickly to those parties who value them most highly and who are therefore most likely to introduce service rapidly to the public." Id. p 5. The Commission expected the PCS license auction to "constitute the largest auction of public assets in American history," recovering "billions of dollars for the United States Treasury," and thus fulfilling another statutory mandate. Id. p 1.

As directed by Congress, the Commission adopted a variety of measures to promote small business ownership of PCS licenses, including setting aside two blocks of licenses, the "C" and "F" Blocks, for bidding by entities with annual gross revenues and total assets below specified amounts. Id. p 12. Especially relevant to this case, the Commission allowed "most successful bidders within the [C and F Blocks] to pay for their licenses in installments." Id. p 16. Observing that "the primary impediment to participation [in license auctions] by designated [small business] entities is lack of access to capital," id. p 10, the Commission concluded that "installment payments are an effective means to address the inability of small businesses to obtain financing and will enable these entities to compete more effectively for the auctioned spectrum." Id. p 135. "By allowing payment in installments," the Commission stated, "the government is in effect extending credit to licensees, thus reducing the amount of private financing needed prior to and after the auction." Id. p 136. The Commission also announced that "[t]imely payment of all installments will be a condition of the license[ ] grant and failure to make such timely payment will be grounds for revocation of the license." Id. p 138.

In 1995, a group of former telecommunications executives founded NextWave Personal Communications Inc. and NextWave Power Partners Inc. (collectively "NextWave"), appellants in this case, for the purpose of bidding on PCS licenses and operating a personal communications service. NextWave's founders hoped the company would become a "carrier's carrier," selling wireless services and airtime wholesale. Appellants' Opening Br. at 5. At C Block auctions in May and July, 1996, NextWave bid $4.74 billion in total, winning sixty-three licenses. The company made a $474 million down payment. Several months later, the Commission granted NextWave its licenses, took a security interest in each, and filed UCC financing statements to perfect its claims. The security agreements gave the Commission "a first lien on and continuing security interest in all of the Debtor's rights and interest in [each] License." Security Agreement between NextWave and FCC p 1 (January 3, 1997). The licenses included the following language: "This authorization is conditioned upon the full and timely payment of all monies due pursuant to ... the terms of the Commission's installment plan as set forth in the Note and Security Agreement executed by the licensee. Failure to comply with this condition will result in the automatic cancellation of this authorization." FCC, Radio Station Authorization for Broadband PCS 2 (issued to NextWave January 3, 1997).

After the Commission awarded the C Block licenses, several successful bidders, including NextWave, experienced difficulty obtaining financing, having agreed to pay on average almost three times what winning bidders in the prior A and B Block auctions had paid, and several times what winning bidders in subsequent D, E, and F block auctions paid. In response, the Commission suspended installment payment obligations for C Block licensees, and

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then issued two Restructuring Orders, offering a variety of revised financing options that allowed C Block licensees to surrender some or all of their licenses for full or partial forgiveness of their outstanding debt. See In re Amendment of the Comm'n's Rules Regarding Installment Payment Fin. for Pers. Communications Servs. Licensees, Second Report and Order and Further Notice of Proposed Rule Making, 12 FCC Rcd 16436 p p 6, 32-69 (1997); In re Amendment of the Comm'n's Rules Regarding Installment Payment Fin. for Pers. Communications Servs. Licensees, Order on Recons. of the Second Report and Order, 13 FCC Rcd 8345 p p 11-15 (1998); see also In re Amendment of the Comm'n's Rules Regarding Installment Payment Fin. for Pers. Communications Servs. Licensees, Second Order on Recons. of the Second Report and Order, 14 FCC Rcd 6571 (1999). None of the restructuring options allowed licensees to keep any of their licenses for less than the full bid price. See In re Amendment of the Comm'n's Rules, Order on Recons., 13...

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