Airadigm Communications, Inc. v. F.C.C.
| Decision Date | 27 October 2006 |
| Docket Number | No. 06-155.,06-155. |
| Citation | 372 B.R. 894 |
| Parties | AIRADIGM COMMUNICATIONS, INC., Plaintiff, v. FEDERAL COMMUNICATIONS COMMISSION, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Kathryn A. Pamenter, Ronald Barliant, Chicago, IL, for Plaintiff.
Rodney Allen Morris, US Dept of Justice, Civil Division, Mary A. DeFalaise, Washington, DC, for Defendant.
The parties to this adversary proceeding have filed cross-motions for summary judgment, asking two questions left unanswered by the Supreme Court's 2003 decision in Federal Communications Commission v. NextWave Personal Communications, Inc., 537 U.S. 293, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003). The questions, broadly stated, are: to what extent are debts owed to the Federal Communications Commission ("FCC") treated differently from other claims in bankruptcy; and, does the Communications Act of 1934, as amended, and regulations thereunder, preempt or otherwise supersede state commercial laws.
The FCC is the federal agency charged with licensing use of the airwaves. The Communications Act gives the FCC the authority to issue radio licenses in a manner that will serve the "public interest, convenience, and necessity." 47 U.S.C. § 309(a) (2000). Use of FCC licenses by mobile telephone companies has grown rapidly in the last decade. Plaintiff, Airadigm Communications, Inc. ("Airadigm"), is a mobile telephone company that holds 15 PCS (Personal Communications Services) licenses ("the licenses") in Wisconsin, Iowa and Michigan.
Section 309(j) of the Communications Act authorizes the FCC to grant PCS licenses "through a system of competitive bidding." 47 U.S.C. § 309(j)(1). "Section 309(j) serves a variety of purposes, including the development and rapid deployment of new technologies and services for the benefit, of the public; recovery for the public of a portion of the value of the public spectrum resource; and promotion of the `efficient and intensive use of the electromagnetic spectrum.'" Def. Mem. in Supp. at 2; 47 U.S.C. §§ 309(j)(3)(A); 309(j)(3)(C)-(D). "Since a bidder's ability to introduce valuable new services and to deploy them quickly, intensively, and efficiently increases the value of a license to a bidder, an auction design that awards licenses to those bidders with the highest willingness to pay tends to promote the development and rapid deployment of new services in each area and the efficient and intensive use of the spectrum." In re NextWave Personal Communications, Inc., 200 F.3d 43, 52 (2d Cir.1999) (internal citations omitted).
In adopting a system of competitive bidding, Congress was "concerned that, unless the Commission is sensitive to the need to maintain opportunities for small businesses, competitive bidding could result in a significant increase in concentration in the telecommunications industries." H.R.Rep. No. 111, 103d Cong., 1st Sess. 254 (1993), U.S.Code Cong. & Admin.News 1993, pp. 378, 581. Congress therefore directed the FCC to promote "economic opportunity and competition ... by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses." 47 U.S.C. § 309(j)(3)(B). To facilitate small business participation, the Communications Act instructs the FCC to "consider alternative payment schedules and methods of calculation, including lump sums or guaranteed installment payments." 47 U.S.C. § 309(j)(4)(A). In response, the FCC adopted a variety of specialized preferences, including bidding discounts, installment payment plans, and spectrum setasides to help small businesses and other favored groups compete.
The FCC also adopted two strategies to protect the public's property interest in the licenses. First, it resolved to cancel the licenses of any licensee that failed to make installment payments on time. Second, it took security interests in all licenses being paid for in installments. The FCC gave notice to the public of its security interests by filing financing statements under the Uniform Commercial Code, noting its lien on each of the licenses,1 and posting the full license documents on its website.2 Counsel for the FCC stated at oral arguments that it took all of these steps as a "belt and suspenders" approach to maintaining its interest. That is, the FCC did not believe it needed to perfect its interests under state law because federal law governs the validity of security for federal loans, but it did so anyway. Importantly, the FCC's liens enjoyed the highest priority because 47 U.S.C. §§ 301 and 304 provide that a broadcast license issued by the FCC does not convey a property interest in which another party could assert rights contrary to the FCC's regulatory powers. In re Media Props., Inc., 311 B.R. 244, 247 (Bankr.W.D.Wis. 2004). Transfer of licenses to a third party is permissible only with express approval of the FCC. See F.C.C. v. WOKO, Inc., 329 U.S. 223, 229, 67 S.Ct. 213, 91 L.Ed. 204 (1946).
Airadigm and other small companies acquired wide swaths of PCS spectrum at eye-popping prices in two auctions (Nos. 5 and 11) in the mid-1990s. Soon they had trouble paying their debts to the FCC. In 1997, the FCC suspended default, cancellation, late fees, and penalties for all licensees who were on installment plans. In the Matter of Amendment of the Commission's Rules Regarding Installment Payment Financing for PCS Licensees, 14 F.C.C.R. 6571, 1999 WL 183822 (1999).
On June 5, 1998, Airadigm agreed to retain all 15 of its licenses and to resume installment payments in 1999, rather than surrender the licenses. However, two days before its first installment was due, Airadigm filed for relief under chapter 11 of the Bankruptcy Code in this court ("the 1999 case"). A number of other small telecommunications companies filed bankruptcy at about the same time. The most prominent of these were the NextWave companies.
NextWave filed its chapter 11 in the Southern District of New York. It immediately initiated an adversary proceeding against the FCC for fraudulent conveyance, arguing that its licenses were less than reasonably equivalent value for the several billion dollars paid. In response, the FCC canceled NextWave's licenses and tried to reauction them.
The Bankruptcy Court ruled for NextWave, the District Court affirmed, and the U.S. Court of Appeals for the Second Circuit reversed.3 The FCC argued that the courts lacked jurisdiction over the FCC's regulatory functions and that the condition of full payment in NextWave's licenses was inextricable from the licenses themselves. Br. for Appellant at 25, In re NextWave Personal Communications, Inc., 200 F.3d 43 (2d Cir.1999). Ultimately, the Court of Appeals adopted the FCC's view. Id.; In re F.C.C., 217 F.3d 125 (2d Cir.), cent denied, 531 U.S. 1029, 121 S.Ct. 606, 148 L.Ed.2d 518 (2000).
When the Supreme Court denied certiorari in the Second Circuit case, NextWave petitioned the FCC itself. The FCC declined to' reconsider cancellation of NextWave's licenses. On appeal, the U.S. Court of Appeals for the District of Columbia Circuit held that canceling NextWave's licenses violated § 525(a) of the Bankruptcy Code, which prohibits a government agency from revoking a license solely because the licensee filed for bankruptcy or did not pay a debt dischargeable in bankruptcy. NextWave Personal Communications, Inc. v. FCC, 254 F.3d 130 (D.C.Cir. 2001).
The Supreme Court granted certiorari and affirmed the D.C. Circuit. FCC v. NextWave Personal Communications, Inc., supra. The Court agreed with NextWave that the plain language of § 525(a) prohibited the FCC from canceling NextWave's licenses. The Court rejected the FCC's argument that its insistence on full payment was a regulatory condition and not a debt that could be discharged in bankruptcy. Id. at 302, 123 S.Ct. 832. Instead, it held that § 525(a) governed all debts, whether or not they were also regulatory conditions. Id. at 303, 123 S.Ct. 832. The Court also held that there was no conflict between the Communications Act and the Bankruptcy Code, because the FCC's demand for payment in full was an "administrative preference" which did not affect the Bankruptcy Code. Id. at 304, 123 S.Ct. 832. Finally, the majority acknowledged the seemingly anomalous result that a private creditor could revoke licenses (such as those granting the use of a trademark) on account of a debtor's filing for bankruptcy, but under the anti-discrimination provisions of § 525, the U.S. Government could not. Id. at 307-08, 123 S.Ct. 832. The language of the statute clearly required that result. Id.
While the FCC and NextWave were taking their cases up and down the judicial ladder, on October 13, 2000 Airadigm and some of its creditors proposed a Collective Plan of Reorganization which provided for a number of foreseeable contingencies. By then, the FCC had cancelled Airadigm's licenses, but had permitted Airadigm to continue operating under them. The FCC had filed a proof of claim for $64,219,442.55 plus interest. On November 15, 2000, this court confirmed Airadigm's Amended Plan of Reorganization ("the 2000 plan") over the FCC's objection.
The 2000 plan tacitly recognized that the licenses had been cancelled and it provided alternative means to implement the plan depending upon when the FCC might reinstate the licenses. The plan made no specific provision for its implementation if the FCC reinstated the licenses after June 30, 2002. It did provide that, irrespective of if or when the FCC reinstated the licenses, the FCC's regulatory rights would be preserved. 2000 Plan ¶¶ 2.39, 5.1, 12.5.
The Supreme Court decided NextWave on January 27, 2003. Seven months later, the FCC acknowledged that NextWave applied to Airadigm's licenses. In re Airadigm Communications, Inc., 2003 WL 21878647, 18...
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