In re NextWave Personal Communications, Inc.
| Decision Date | 07 December 1998 |
| Docket Number | Bankruptcy No. 98 B 21529(ASH). Adversary No. 98-5178A. |
| Citation | 235 BR 263 |
| Parties | In re NextWAVE PERSONAL COMMUNICATIONS, INC., et al., Debtors. NextWave Personal Communications, Inc., Plaintiff, v. Federal Communications Commission, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Andrews & Kurth L.L.P., By Deborah L. Schrier-Rape, Dallas, TX, for plaintiff/debtor.
Mary Jo White, United States Attorney for the Southern District of New York, By Daniel S. Alter, New York City, for defendant.
REVISED DECISION ON MOTION TO DISMISS
Defendant Federal Communications Commission ("FCC") has moved to dismiss this adversary proceeding for lack of subject matter jurisdiction.1
The First Amended Complaint of plaintiff-debtor NextWave Personal Communications, Inc. ("NextWave" or the "debtor") contains two causes of action. The first alleges that NextWave's transfers to the FCC of deposits and secured promissory notes aggregating $4.7 billion in exchange for conditional grants of 63 C block lines on January 3, 1997 were constructive fraudulent conveyances subject to avoidance under 11 U.S.C. § 544. The second cause of action alleges that, by reason of the FCC's de facto control over NextWave and its "inequitable, unconscionable and unfair conduct" from the time of the C block auctions through the conditional grant of licenses on January 3, 1997, the FCC's liens and claims should be equitably subordinated to the claims of other creditors in the case, including inter-company and affiliate claims.
The motion to dismiss will be denied as to the first cause of action and granted as to the second. As amplified below, the first cause of action arises solely out of the FCC's status as a creditor of NextWave and does not seek to challenge any act or omission of the FCC or to affect the FCC in any manner except in its capacity as a creditor. By contrast, the second cause of action is based upon conduct of the FCC acting in its regulatory capacity. This Court will decline to review or adjudicate the consequences of the FCC's acts and omissions in matters over which Congress has granted the FCC primary jurisdiction.
This Court has jurisdiction over the debtor's Chapter 11 case by reason of 28 U.S.C. §§ 1334(a) and 157(a) and the standing order of reference dated July 10, 1984 signed by Acting Chief Judge Robert J. Ward. This Court's jurisdiction with respect to the claims asserted in the adversary proceeding is the subject of this decision.
In section 309(j) of the FCA Congress authorized the FCC to issue radio spectrum licenses to various categories of qualified applicants through a system of competitive bidding. 47 U.S.C. § 309(j)(1), (2). Among the categories of applicants, the FCC was directed by the statute to designate portions or "blocks" of the radio spectrum for auction to small, emerging businesses and to establish flexible, deferred license payment plans to enable such enterprises to participate in the communications industry. 47 U.S.C. § 309(j)(3)(B) and (4)(D). Consistent with this mandate, the FCC designated the C block for auction to small businesses providing Personal Communications Services ("PCS"), a new form of wireless communication technology.
On May 6 and July 16, 1996, the FCC conducted its C block auctions, in which some 90 bidders won the right to apply for 493 C block licenses at bid prices aggregating $10.2 billion. As mandated by the statute, successful bidders were obligated to pay 10% of their winning bids in cash and to pay the remaining 90% to the FCC in deferred installments. Consistent with the statutory mandate, the FCC enacted regulations authorizing payment of the remaining 90% over a period of ten years, with interest only for the first six years and principal and interest for the remaining four years. 47 C.F.R. § 24.711(b)(3). Below-market interest rates were provided to enable start-up companies to obtain financing through capital markets or private placement in order to make debt payments to the FCC and to "build out" their PCS networks.
NextWave is a start-up company organized to take advantage of the opportunities provided by section 309(j) in the fledgling PCS industry. NextWave was high bidder for a total of 63 C block licenses for amounts aggregating approximately $4.7 billion. As required, NextWave made 10% downpayments aggregating some $474 million. In late May and late July 1996, following the auctions in those months, NextWave submitted applications for the C block licenses upon which it was the winning bidder for review and approval by the FCC.
On September 17, 1996, C block licenses were granted to over 90% of the parties who had earlier been designated as making high bids for licenses in the C block. The FCC did not grant approval for NextWave's 63 C block licenses until January 3, 1997. Shortly thereafter, NextWave received from the FCC a series of promissory notes made payable to the FCC (the "Notes") aggregating $4.26 billion, representing the remaining 90% of the amount bid by NextWave for its C block licenses. NextWave executed the Notes on February 19, 1997.
On June 26, 1996 the FCC announced the date for commencement of the D, E and F block auctions, which were held on August 26, 1996 and concluded in January 1997. These blocks covered geographical areas across the country, including areas covered by the 63 C block licenses for which NextWave was awaiting FCC approval. The winning bids on the D, E and F block auctions were at a fraction of the winning bids in the C block auction.3 The drastic devaluation in the C block licenses, as reflected in the values of the subsequently bid D, E and F block licenses, is the central factor in the NextWave bankruptcy filing and in the debtor's adversary proceeding against the FCC.
As a consequence of the gross disparity between the values of the C block licenses and those of the D, E and F block licenses, many if not most or all of the C block licensees experienced great difficulty in obtaining necessary financing. As stated in the FCC memorandum:
In early 1997, the FCC received several requests from C block licensees for relief from their installment payments that described a range of difficulties in accessing the capital markets.... The FCC\'s Wireless Telecommunications Bureau ("Wireless Bureau") also received several proposals from C block licensees regarding alternative financing arrangements, as well as a petition for rulemaking regarding C block installment payments. In response to these requests, the FCC suspended the C block installment payments indefinitely, and initiated an elaborate administrative process for restructuring the C block license obligations.
After issuing public notice seeking comments, receiving over 160 filings in response, conducting a public forum in Washington, D.C. and reviewing further submissions thereafter, on October 16, 1997 the FCC issued a "Restructuring Order" which provided distressed C block licensees with four distinct, mutually-exclusive options regarding financial relief for C block licensees. In response to the Restructuring Order, the FCC received numerous petitions for reconsideration, oppositions, replies and ex parte filings. On March 24, 1998 the FCC issued a "Reconsideration Order," in which the FCC left intact the basic framework of the Restructuring Order, modifying it only slightly to allow licensees somewhat more flexibility in making their choices available under the Restructuring Order. The Restructuring Order and the Reconsideration Order are referred to collectively as the "Restructuring Orders."
On May 8, 1998 NextWave petitioned the FCC for further reconsideration of the Restructuring Orders, and on May 29, 1998 NextWave filed a petition for review of the Restructuring Orders with the District of Columbia Circuit Court. NextWave asked both the FCC and the Circuit Court for a stay of the June 8, 1998 deadline for its election of one of the four alternatives provided in the Restructuring Orders. Both the FCC and the Circuit Court denied NextWave's requests for stay of the June 8 deadline.
On June 8, 1998 NextWave filed its Chapter 11 petition together with the complaint in this adversary proceeding.
The basic legal principles of jurisdiction governing the outcome of this motion are established by statute and are not controversial.
Congress has vested in the Circuit Courts of Appeals exclusive jurisdiction to enjoin, set aside, annul or suspend orders of the FCC. 28 U.S.C. § 2341(1) and 47 U.S.C. § 402. See FCC v. ITT World Comms., Inc., 466 U.S. 463, 468, 104 S.Ct. 1936, 80 L.Ed.2d 480 (1984); Wilson v. A.H. Belo Corp., 87 F.3d 393, 396 (9th Cir.1996); Media Access Project v. FCC, 883 F.2d 1063, 1066 (D.C.Cir.1989); ...
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