Supreme Court Rules Against FCC in NextWave Case

January 27, 2003. The Supreme Court issued its opinion [34 pages in PDF] in FCC v. NextWave Personal Communications, holding that the Federal Communications Commission's (FCC) attempt to revoke NextWave's spectrum licenses violated Section 525 of the Bankruptcy Code.

Background. NextWave obtained spectrum licenses at FCC auctions in 1996. The FCC permitted NextWave to obtain the licenses, and make payments under an installment plan, thus creating a debtor creditor relationship between NextWave and the FCC. NextWave did not make payments required by the plan, and filed a Chapter 11 bankruptcy petition. The FCC cancelled the licenses. It then proceeded to re-auction the disputed spectrum. The U.S. Court of Appeals (DCCir) ruled in its June 22, 2001, opinion that the FCC is prevented from canceling the spectrum licenses by § 525 of the Bankruptcy Code. The FCC petitioned the Supreme Court for writ of certiorari. The Court granted certiorari. This is Supreme Court Nos. 01-653 and 01-657.

Statute. Section 525(a) provides, in part, that "a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act."

Holding. Justice Antonin Scalia wrote the opinion of the Court. It was an 8-1 decision. Justice Stevens joined in part, and Justice Breyer dissented. While the whole slip opinion is 34 pages in PDF, most of this is devoted to the facts, dissent, and response to the dissent. The portion of Scalia's opinion that is devoted to holding that the FCC violated Section 525 is short and simple.

He wrote that "In these cases, we decide whether §525 of the Bankruptcy Code, 11 U.S.C. § 525, prohibits the Federal Communications Commission (FCC or Commission) from revoking licenses held by a debtor in bankruptcy upon the debtor’s failure to make timely payments owed to the Commission for purchase of the licenses."

"The Administrative Procedure Act requires federal courts to set aside federal agency action that is ``not in accordance with law,´´ 5 U. S. C. § 706(2)(A) -- which means, of course, any law, and not merely those laws that the agency itself is charged with administering."

Justice Scalia then recited the relevant words of Section 525: "[A] governmental unit may not ... revoke ... a license ... to ... a person that is ... a debtor under this title ... solely because such ... debtor ... has not paid a debt that is dischargeable in the case under this title ..."

He continued that "No one disputes that the Commission is a ``governmental unit´´ that has ``revoke[d]´´ a ``license,´´ nor that NextWave is a ``debtor´´ under the Bankruptcy Act. Petitioners argue, however, that the FCC did not revoke respondent’s licenses ``solely because´´ of nonpayment, and that, in any event, NextWave’s obligations are not ``dischargeable´´ ``debt[s]´´ within the meaning of the Bankruptcy Code. They also argue that a contrary interpretation would unnecessarily bring §525 into conflict with the Communications Act. We find none of these contentions persuasive ..."

Justice Scalia then concluded, "There being no inherent conflict between §525 and the Communications Act, ``we can plainly regard each statute as effective.´´ J. E. M., supra, at 144. And since §525 circumscribes the Commission's permissible action, the revocation of NextWave's licenses is not in accordance with law."

Reaction. FCC Chairman Michael Powell stated in a release [MS Word] that "The Supreme Court's decision brings much needed certainty to an unsettled area of the law. We are in the process of examining all of the ramifications of the Court's decision. The Commission will faithfully implement the Court's mandate and looks forward to facilitating the provision of service in these bands to the American people as soon as practicable."

Tom Wheeler, P/CEO of the Cellular Telecommunications & Internet Association (CTIA), stated in a release that "Finally, this Gordian legal knot has been cut. This valuable spectrum, tied up in the courts and thus left fallow for far too long, can now be put to use delivering wireless service to America's consumers."