FCC v. NEXTWAVE COMMUNICATIONS, INC.
After the Federal Communications Commission (FCC) auctioned off certain broadband personal communications services licenses to NextWave Personal Communications, Inc., Nextwave filed for Chapter 11 bankruptcy protection and suspended payments to all creditors, including the FCC. The FCC asserted that NextWave's licenses had been canceled automatically when the company missed its first payment-deadline and announced that NextWave's licenses were available for auction. Ultimately, when the FCC denied NextWave's petition for reconsideration of the license cancellation, the Court of Appeals for the D. C. Circuit held that the cancellation violated 11 USC section 525(a), which provides that a "governmental unit may not...revoke...a license...to...a debtor...solely because such...debtor...has not paid a debt that is dischargeable in the case." (Together with No. 01-657, Arctic Slope Regional Corp. et al. v. NextWave Personal Communications Inc. et al.)
Does section 525 of the Bankruptcy Code prohibit the Federal Communications Commission from revoking licenses held by a debtor in bankruptcy upon the debtor's failure to make timely payments owed to the FCC for purchase of the licenses?
Legal provision: Bankruptcy Code, Bankruptcy Act or Rules, or Bankruptcy Reform Act of 1978
Yes. In an 8-1 opinion delivered by Justice Antonin Scalia, the Court held that the FCC's cancellations of the licenses violated section 525(a) as revocations of government licenses solely for nonpayment of the debtors' dischargeable debts. The Court rejected the FCC's argument that it did not revoke NextWave's licenses solely because of nonpayment and noted that the fact that the FCC had a valid regulatory motive for its action was irrelevant. Justice Scalia reasoned that, because the statute refers to failure to pay a debt as the sole cause of cancellation, it cannot reasonably be understood to include the governmental unit's motive in effecting the cancellation, since such a reading would deprive section 525 of force. Justice John Paul Stevens filed an opinion concurring in part and concurring in the judgment. Justice Stephen G. Breyer authored a dissenting opinion.
Argument of Paul D. Clement
Chief Justice Rehnquist: We'll hear argument now in Number 01-653, Federal Communications Commission v. NextWave Personal Communications and a companion case.
Mr. Clement: Mr. Chief Justice and may it please the Court:
Congress has directed the FCC to use auctions to allocate scarce wireless spectrum in a manner that furthers the public interest.
Those auctions allocate spectrum to the party who will... who values the spectrum most highly and, by assumption, will use it most effectively to serve the public.
In addition, Congress has directed the FCC to consider a number of specific factors in assessing the public interest, including promoting opportunities for small business and ensuring the rapid deployment of wireless services.
Nothing in that public interest regulatory regime runs afoul of section 525 of the Bankruptcy Code.
To be sure, in administering its auctions the FCC does place consequences on the regulatory signals provided by the failure to meet regulatory payment deadlines.
In particular, the FCC views the failure to make a timely regulatory payment as a proxy for a determination that continued possession of the license is not in the public interest.
Justice Kennedy: But your point is, is that the regulatory discretion and authority of the agency has been replaced under the statutory scheme in large part by the dynamics of the free market.
The highest bidder shows us which is the most qualified person.
Mr. Clement: That's right.
It's been replaced in large part but not exclusively, and I think both aspects that are important--
Justice Kennedy: Well, as to the first part, isn't the Bankruptcy Code and the policy of new start and creditors and so forth, isn't that really part of the free market structure?
Mr. Clement: --Well, I think there's a difference, though, when a regulator regulates solely for timely payment for its own sake, and in that case it implicates only the policies that are addressed by the Bankruptcy Code, and I think it's a different situation when the regulator looks at the failure to make timely payment as a proxy for something else.
Chief Justice Rehnquist: Well, but Mr. Clement, in your petition for certiorari, the question presented speaks of an obtained option automatically canceled.
That suggests that it is indeed automatic.
Mr. Clement: Well, it's automatic in the sense--
Chief Justice Rehnquist: I mean, automatic means without any discretion.
Mr. Clement: --With respect, Justice, Chief Justice Rehnquist, when it says automatic, what it means is that it cancels without any, the need for any further action from the commission, but in any given case, the cancellation of a license is a result both of the automatic cancellation rule and the fact that a payment deadline has come forward, and where the commission has discretion is in relaxing the payment deadline, and you can see that in this very case.
NextWave's license is canceled, according to the FCC, because NextWave failed to make the very first installment payment due under those licenses.
Now, according to the licenses in the first instance, that payment was due on April 30, 1997, but the licenses didn't cancel on April 30, 1997 because the commission in its discretion, as part of a multifactor public interest determination, extended the payment deadline a full 18 months.
Justice O'Connor: Well, Mr. Clement, it appears to me that the FCC went along with the bankruptcy filing, filed a claim for the amount that wasn't paid, and apparently went along with the proposals for a while to work this out and then, very shortly before the decision to reauction the things, the FCC decided not to go along with it.
That doesn't sound like some automatic cancellation.
I mean, the FCC appeared to treat it very much like the bankruptcy claim for quite some time, didn't it?
Mr. Clement: Well, to be sure, the FCC participated in the bankruptcy proceedings and protected its interests as a creditor, but at the same time it has independent interests as a regulator, and the FCC, as we point out on page 19 of the reply brief, made clear at various points well before NextWave went into bankruptcy that it did not view bankruptcy as an exception from the regulatory provisions of the Communications Act, and I think if you look at the specific event that NextWave points to as the automatic cancellation, it's the failure to make a payment that was due on October 29, 1998, and it was due on the 29th of October, 1998, rather than April 30, 1997, precisely because of a public interest determination by the commission.
Justice Souter: You say a public interest determination, but the only correlation that seems clear to me is a purely economic correlation.
When the value of the leases dropped, the FCC apparently went into the Bankruptcy Court and said, we want our full $4 billion, and when the value of the leases went up, the FCC took the position, we want to reauction them and get the increase in value.
It seems at each point at which the FCC made a decision, it was making an economic decision, not a regulatory decision.
Mr. Clement: With respect, Justice Souter, I don't think that's correct.
When... I mean, it is true that the FCC tried to go in and protect its interests as a creditor, but at the point that NextWave was trying to keep its regulatory licenses that it promised to pay $4.7 billion for, and trying to keep those licenses for just over a billion, the result of that process would have been that the rest of that amount, the $3 billion plus, would have been an unsecured claim of the FCC, that would have been really worth virtually nothing, so I think the better way to understand this case is that the FCC does have interests as a creditor, and it has tried to protect those interests in the bankruptcy proceedings and has participated in those proceedings, but at the same time, it has interests with the... as a regulator, and in its capacity as a regulator it hasn't acted in a way that would result in a sole-cause cancellation.
Justice Scalia: Mr. Clement, suppose... and I consider this a classic case for what this provision of the Bankruptcy Code was directed to.
Suppose you have a State law that says anyone who is in default of traffic tickets that amount to more than $500 shall have his license revoked, okay, and the person in question goes into bankruptcy, doesn't pay the $500, gets the $500 discharged in bankruptcy, the State you think can revoke his license?
Mr. Clement: No, I don't, but let me give you--
Justice Scalia: Why not?
Isn't there a regulatory purpose there?
Mr. Clement: --No.
The only regulatory purpose there, at least as I understand your hypothetical, is in providing for timely payment, but suppose a State--
Justice Souter: No, the regulatory purpose is having financially responsible drivers so people don't run around the road hurting people and leaving them to bleed on their own account.
Mr. Clement: --Well--
Justice Souter: There's just as much a regulatory purpose in that hypo as there is here.
Justice Scalia: You can always find a regulatory purpose.
I mean, it's the easiest thing in the world to do.
Mr. Clement: --But again, but if a State had a regulatory purpose in ensuring that its drivers were financially responsible, and presumptively said that a license would fail to cancel for the failure to pay $500 in traffic tickets, but provided a mechanism for the driver to go in before the regulatory commission and say, look, I know I haven't paid $500 worth of traffic tickets, but I'm actually financially responsible.
I have a ton of money in the bank, and so you ought to give me a relaxation of the rules or a waiver--
Justice Scalia: There's always such a mechanism whenever you have a debtor and a creditor.
The creditor can always extend the payment.
Mr. Clement: --Right, but--
Justice Scalia: You need some special power from the State to do that?
Mr. Clement: --Well, but again, if you look, and what the regulator is doing is extending the... extending the payment not as a creditor, but as a regulator, I think you're in a very different situation.
Justice Scalia: So you're just making up a regulatory purpose, as a regulator.
I mean, as a regulator, as a creditor you can always say it's being done as a regulator, always.
Mr. Clement: I really don't think that's true, with respect.
I think the kind of waiver proceeding or opportunity to relax the rules would be out of place in a regulatory regime that was only concerned with timely payment.
It's precisely because the FCC uses the timely payment, or the failure to make timely payment, as a proxy for a public interest determination that it has this waiver proceeding, and it gives the regulating entity--
Justice Ginsburg: That's something that I don't fully grasp in your argument.
First you say, this is fully automatic, this cancellation of the license.
You don't pay up, license gone.
But then you say, but we can extend the time if we want to.
We can use our discretion.
Well, the automatic argument seems at war with the discretion argument.
Mr. Clement: --Well, I mean, there is some tension there, and the FCC has been at pains to try to make sure that it doesn't bend over one way too far or the other.
In its restructuring order that I think is critical in this case.
It froze the payments... it suspended the payments ultimately for 18 months, and then it also provided some restructuring options that required further modifications of its rules.
Chief Justice Rehnquist: Well--
Mr. Clement: When it did that--
Chief Justice Rehnquist: --Go ahead.
Mr. Clement: --When it did that, not only did some people complain that they didn't give enough regulatory relief, but other disappointed bidders ran to the D.C. Circuit and said, look, you've acted arbitrarily and capriciously because you haven't stuck with your pre-auction rules.
Chief Justice Rehnquist: But this doesn't sound at all like the question presented, which says at auction, automatically cancel upon the winning bidder's failure to make timely payments to fulfill its winning bid.
It... when you were drafting that question, it sounds like your perception of the thing was quite different than it is now.
Mr. Clement: Well, again I think the key is, the payments do cancel automatically after all the efforts to get the payments extended have failed, and that's just not like a hypothetical consideration in this case, because in this very case--
Justice Stevens: I agree, you've said two different things there.
If it's automatic, it happened without whatever happened next.
But you're saying it automatically canceled after attempts to collect failed.
Mr. Clement: --No, no, not after attempts to--
Justice Stevens: So when was the automatic trigger?
Mr. Clement: --The automatic trigger is when somebody fails to make a payment--
Justice Stevens: All right.
Is that enough?
Mr. Clement: --And... no, it's really not enough, if you look at the broader perspective of the regulation, because there's an alternative way to get out of the automatic cancellation.
It's not... if you're a regulated entity and you don't want your license to cancel, you don't go to the commission and say, don't apply the automatic cancellation.
What you do is, you go to the commission and you say, I've a regulatory payment.
It's going to be due April 30.
I'm not in a good position to make that payment, so what I'd like you to do is relax the payment deadline, and--
Justice Stevens: And you say you have the authority to relax the payment date?
Mr. Clement: --Not only does the commission have the authority to do that--
Justice Stevens: If that's true--
Mr. Clement: --it did it in this very case.
Justice Stevens: --If that's true, why don't you settle the case today?
They say they can pay in full today.
Mr. Clement: Well, the reason we don't settle the case today, although obviously there were efforts to try to settle this, which would require congressional legislation, which we were unable to get in a timely fashion, but the reason that they are not in a position to cure their defaults, if you will, is because our view is that they have... the opportunity to cure has passed.
The licenses have actually already--
Justice Stevens: But is the option to cure... if you wanted to settle, would you be disabled from settling, or could you settle, decide, well, we think it would be wise regulation now to accept the payment?
Mr. Clement: --I think it would be within the agency's discretion to settle the litigation at this point.
Now, of course, if we did that, I'm sure, as in the last time the commission tried to relax its rules, I'm sure we'd draw a D.C. Circuit challenge to that exercise of discretion to relax the rules.
But the very fact that there is that reservoir of discretion to relax the rules demonstrates that the ultimate cancellation is not a sole-cause cancellation.
Justice Scalia: I think... so it is really a legal issue, whether you have that discretion or not?
I mean, there are people who say you don't have that discretion.
Mr. Clement: Absolutely.
Justice Scalia: Well, do we have to decide that in this case?
I didn't realize that was one of the issues presented.
That may be a more important issue than the, you know, few billion dollars involved here.
Mr. Clement: Well--
Justice Scalia: Right?
Unknown Speaker: [Laughter]
Mr. Clement: --But I don't think... whether or not the FCC has the authority to exercise that discretion in a particular case might be an issue, but it's undisputed that they have that right as a general matter and, in fact, NextWave wouldn't be here today if the FCC didn't have the authority to offer discretionary relaxation of its rules.
Justice Scalia: Well, you might not be here, but I mean, we're just assuming that it had that.
The case is here.
That is not one of the questions presented.
I frankly don't want to decide that question, because that is not one of the things I've given a lot of attention to.
It sounds to me very, you know, at least quite arguable whether they ought to have that authority.
Mr. Clement: --Well, Justice Scalia, I don't really think it's in dispute, because in this very case the payment deadline--
Justice Scalia: I agree it's not in dispute, which means we don't have to decide it.
It's not presented in the case.
Chief Justice Rehnquist: --the question.
Mr. Clement: --Well, I--
Justice O'Connor: Mr. Clement, the respondent also makes a right-to-cure argument under the bankruptcy law, and you haven't addressed that, I take it, in your briefs, anyway.
Mr. Clement: --No.
We think the right-to-cure argument is best addressed on remand.
I do think there are two reasons why the right to cure is not any longer available to NextWave.
One is that the licenses automatically canceled on their own terms.
The second reason is that the license restriction, the licenses themselves had a restriction on transfer or alienation, and there's law under 11 U.S.C. 365 that deals with executory obligations that says that the debtor in possession cannot take possession of a license, assume the obligations of a license if there are restrictions on its alienation or transfer.
Justice Kennedy: In FCC practice, have you ever revoked a license and then decided that you're going to reissue it to the initial holder?
Mr. Clement: Well, there have been situations like that, not necessarily in the C-Block license situation, but there was a situation with respect to a different program where a license canceled by its own terms by a failure to renew, and the commission renewed that license largely on the basis of the fact that that licensee was already providing service, and so the result of revoking the license would be to deny people service that was currently being provided.
Now, in the reconsideration order that's the subject--
Justice Kennedy: Well, a reconsideration order is different, but a new issuance it seems to me is quite questionable so far as the discretion of the agency, and I think I agree with some of my colleagues, I'm not sure that's before us.
Mr. Clement: --Well, I think that particular instance is particularly relevant, because NextWave relied on that in its reconsideration proceedings before the commission.
And the commission, in rejecting that, I think demonstrated why this isn't a case of sole-cause cancellation.
If you look at the commission's reasoning on page 82a of the petition appendix, the commission says, quote,
"NextWave is providing no service. "
"The spectrum licensed to NextWave has gone unused since early 1997, and represents licenses in 90 markets across the United States. "
Chief Justice Rehnquist: But that same order repeatedly refers to the automatic cancellation rule.
Mr. Clement: Absolutely, it does, and what the commission decided in this order, which is under review in this case, is that it was not going to relax or provide an exception to the automatic cancellation rule, but the reason it decided that is because NextWave wasn't providing service, and that others stood ready to provide service under that spectrum, and what I would respectfully suggest is that under those circumstances the cancellation is not a sole-cause cancellation.
It also reflects the fact that NextWave wasn't providing service, that others stood ready to do it, and that's enough to take it out of 525, which is, after all, a very narrowly written provision.
It only protects against sole cancellation.
It allows the failure to pay a dischargeable debt to be a contributing factor in a regulatory decision, indeed, the primary factor in the regulatory decision, just not the sole cause.
Justice Stevens: May I ask just one question about your interpretation of the automatic cancellation?
Is it the commission's view that they could... there would be a cancellation, they could reauction the licenses, and that the original licensee would still remain liable for the entire debt?
Mr. Clement: I think the position is they might have an opportunity to go after that as an unsecured debt in bankruptcy.
Justice Stevens: Yes, but they would remain liable for the entire debt, in your view?
Mr. Clement: That's true.
I'd like to reserve the remainder of my time for rebuttal.
Justice Souter: Well, may I just follow up on that?
I mean, I assumed that was not an issue here because they had auctioned them off again and they had mitigated their damages.
Is that the way the commission treated it?
Mr. Clement: That's an open question before the commission that they haven't addressed.
Argument of Jonathan S. Franklin
Chief Justice Rehnquist: Very well, Mr. Clement.
Mr. Franklin, we'll hear from you.
Mr. Franklin: Mr. Chief Justice, and may it please the Court:
The question in this case is whether section 525 of the Bankruptcy Code permits a bankrupt company and a bankruptcy judge to override the FCC's regulatory determination of the public interest and thereby allow the company to retain an exclusive entitlement to use the Nation's airwaves that the FCC and Congress have determined is not in the public interest for it to hold.
Chief Justice Rehnquist: You refer to it as a regulatory determination which, of course, assumes the whole point at issue.
Mr. Franklin: Well, I don't think it... I think that that, in fact, is undisputed as this case comes before the Court, that the FCC had valid regulatory reasons for taking the action it did.
Chief Justice Rehnquist: Then why is it phrased in terms of an automatic cancellation rule?
Mr. Franklin: Because the automatic cancellation happened in November of 1998, but one cannot look at that as a mere snapshot.
You have to look at the reasons why the FCC had that rule and the reasons why the FCC had their auction--
Justice Scalia: Why do you have to look at the reasons?
I mean, that's what troubles me.
The language of the statute simply says that a governmental unit may not revoke a charter, franchise, or other similar grant, okay... it goes on, solely because--
Mr. Franklin: --Right.
Justice Scalia: --such person is or has been a debtor, blah, blah, or hasn't made a payment.
Mr. Franklin: Right.
Justice Scalia: Now, let's assume that there is a Federal statute that makes discrimination because of, or failure to hire someone, or let's say, let's say killing someone solely because of his race--
Mr. Franklin: Yes.
Justice Scalia: --a crime, a separate crime.
And someone, let's assume he kills someone who is Jewish, and he said, well, I didn't kill him solely because he was Jewish; I killed him because I disagree with the policies of Israel.
Does that get him out of the statute?
Mr. Franklin: Well, I'm not aware of a statute like that, that says, solely because--
Justice Scalia: Oh, I made it up.
Mr. Franklin: --I know that, but--
But it's important.
The section 525 is drafted... is an antidiscrimination statute, but it's drafted differently than other... title VII, for example, does not use the word--
Justice Scalia: I'm getting to the question of whether the fact that you have some other motive--
Mr. Franklin: --Yes.
Justice Scalia: --eliminates the sole causality.
The only reason this person was killed was because he was Jewish, and so also here, the only reason this license was terminated is because the person hadn't paid.
Now, there may be some regulatory motive in the background, just as in the hypothetical that I invented there was some international political motive in the background, but that doesn't alter the fact that the person was killed solely because he was Jewish, and it seems to me that the license here was revoked solely because the payment hadn't been made.
Mr. Franklin: With respect, Your Honor, the term because, when it is used in antidiscrimination statutes, and we have cited cases on page 3 of our reply brief, is used to mean motive.
Because means, for the reason that.
That's what the definition of the word, because... when Congress drafted section 525, it drafted the statute narrowly.
It intended to prohibit arbitrary--
Justice Scalia: Then the statute doesn't cover anything, because every regulatory body that cancels a license, whenever there's a license involved, you can say that there is some regulatory motive, as in the hypothetical that I gave to Mr. Clement.
Mr. Franklin: --Well--
Justice Scalia: The motor vehicle cancellation.
Mr. Franklin: --I think that... under section 525, the mere fact that an agency has said it has a regulatory motive is not sufficient.
It has to be a valid one that is not simply an arbitrary attempt to collect a debt, and, Your Honors--
Justice Souter: Okay, can... on that point, do you agree that the statute is a response to... the Perez case, the automobile cancellation?
Mr. Franklin: --Yes.
Justice Souter: There was a regulatory motive there.
The regulatory motive is financially responsible drivers.
The benefits of that are obvious.
Mr. Franklin: Well--
Justice Souter: So if that situation is supposed to be covered by the statute, then by a parity of reasoning, so would this one be.
Mr. Franklin: --But in Perez the Court examined that motive and determined that looking at the statute and looking at the way it operated, in fact, as the Court put it, the sole emphasis of the statute was not the regulatory purpose.
It was... as the Court said, the sole emphasis was the collection of debts.
Justice Souter: Okay, then sole emphasis and sole purpose really boils down not to exclusiveness but a kind of proximate or principal causation theory, and if that's the case, certainly here the FCC treated the debtor relationship as the principal determinant of the various steps that it took.
First, it insisted on its 4 billion, then when the market changed it said, forget it, we want to reauction, and if it's a principal or proximate kind of causation theory, I don't see how you can prevail.
Mr. Franklin: I don't think that section 525 embodies a causation theory in the way that Your Honor is postulating.
I think that section 525 most specifically speaks about which are the valid considerations that an agency can look at, and in this case one needs to look at the auction system that Congress established.
Congress intended to replace the cumbersome comparative hearings and unjust lotteries of the past with a new, more streamlined mechanism under which an entitlement to use our airwaves, everybody's airwaves, is allocated to the person that, or the company that values it the most, and the way we know that is that they must make good on the promises embodied in their auction bid.
Justice Souter: Then why doesn't automatic mean automatic?
Your brother has just explained that automatic means sometimes.
Mr. Franklin: Automatic--
Justice Souter: It means automatic without teeth.
Mr. Franklin: --Automatic means automatic, although there are opportunities, as--
Justice Souter: Automatic except where it isn't.
Mr. Franklin: --Well--
Our position in this case is that the cancellation was automatic, but that it was supported by valid regulatory concerns, and those concerns... I mean, the auction system mandated by Congress would be completely vitiated if a bidder... and I represent people that, companies that are repeat players in this game.
Bidders cannot come in and obtain an entitlement to use our airwaves by promising that they will make a payment, and that's the reason why they're selected--
Justice Ginsburg: Then Mr. Franklin, why didn't Congress provide an exception, as it did in, for perishable commodities for the Department of Agriculture?
Mr. Franklin: --Well--
Justice Ginsburg: If there is this nonbankruptcy overriding concern, then we have one example where Congress responded to it by saying the bankruptcy provision isn't going to prevail.
Mr. Franklin: --Well, I... no exception was needed here.
The agriculture programs allow the Secretary of Agriculture to do what the FCC may not do here, and that is to cancel a license solely because of a failure, a bankruptcy status.
Now, if you look at the statutes that are cited in our reply brief, the agriculture statutes, they allow the Secretary of Agriculture to terminate an agricultural license where somebody has been discharged from bankruptcy, ever in the past, or even if a partner or a shareholder of a company has been discharged from bankruptcy.
Now, the legislative history of that specific exemption makes clear that Congress... there was a debate in Congress as to whether the solely because language would cover that, whether there was a regulatory purpose or not, and Congress felt like they didn't want to have to deal with that.
In this case, however, it is undisputed there was a valid regulatory purpose, and with respect, Justice Scalia, I do not--
Justice Scalia: Of course, nothing in the Federal Communications Act requires the Federal Communications Commission to stand as the guarantor, you know, to hold the bag for the person that they're giving away this multibillion-dollar license to.
They could require cash on the barrelhead, couldn't they?
And let the person who wants the license get a loan from some bank, let them be stuck holding the bag.
Mr. Franklin: --But even in that--
Justice Scalia: So there's no regulatory necessity for this whole tragedy, is there?
Mr. Franklin: --No, with respect, if one looks at a cash-on-the-barrelhead system, the way the FCC auctions work, and our clients are deeply involved in them, one does not get the license right after becoming the high bidder.
There is a period of time in which the FCC has to look at various factors and people have the right to file petitions to deny.
Under NextWave's interpretation of section 525, which prohibits an agency from denying a license to anyone for failing to pay a dischargeable debt, under their interpretation the FCC would be required to grant a license to somebody who has been declared the high bidder and then declares bankruptcy the next day.
What NextWave is doing here is truly gaming the system.
They are saying, it's a heads I win, tails you lose scenario.
We can go into bankruptcy, we get the license because we promised that we would pay more than anybody else would--
Justice Ginsburg: May I stop you in your hypothetical, because I thought you don't get the license till after you have make the down payment.
Mr. Franklin: --You make a down payment, and NextWave made their down payment.
Justice Ginsburg: Yes, but they didn't have any license until they did that.
Mr. Franklin: But what I'm saying is, even on a cash-on-the-barrelhead system the FCC does not require full payment, it can't require full payment until they actually grant the license, and that is a several-month lag between the time when you're declared the high bidder... in one case, in my client's case it was more than a year after they were declared the high bidder for licenses, and they actually received them, because of proceedings that were filed.
Justice Kennedy: The rationale offered by the commission here was that the policies of the FCC outweigh the policies of the Bankruptcy Act.
Is there authority for us to defer to the commission in making that kind of a determination?
I mean, why don't we defer to the Bankruptcy Court, which says the policies of the Bankruptcy Act are more important than the policies of the--
Mr. Franklin: I don't think that the FCC has deference in interpreting the Bankruptcy Code, but I don't think it's a question of whether one policy outweighs the other.
Justice Kennedy: --Well, that's the explicit rationale of the commission.
Mr. Franklin: --Well, our rationale--
Justice Kennedy: That's what it said.
Mr. Franklin: --Our rationale is that they can be harmonized, and should be harmonized.
For example, the exception, the regulatory exception to the automatic--
Justice Kennedy: So that you don't defend the rationale offered by the commission?
Mr. Franklin: --I'm not sure that that is the exact rationale, but we think that the policies can be harmonized and should be harmonized.
Argument of Donald B. Verrilli, Jr.
Chief Justice Rehnquist: Thank you, Mr. Franklin.
Mr. Verrilli Jr.: Mr. Chief Justice, and may it please the Court:
The record is clear that the FCC revoked NextWave's licenses solely because NextWave deferred a payment to the FCC while reorganizing in bankruptcy.
Two and a half years ago the FCC blocked NextWave's bankruptcy reorganization, and it did so by announcing that NextWave's licenses had automatically canceled because NextWave had deferred a loan payment to the FCC in 1998.
Justice Scalia: What do you mean, had deferred it?
Mr. Verrilli Jr.: Well, because NextWave--
Justice Scalia: You mean, failed to make it?
Mr. Verrilli Jr.: --It did not make it, yes.
It did not make it.
Justice Scalia: Why don't we say that?
Mr. Verrilli Jr.: It did not make it--
Justice Scalia: There might have been some legal mumbo-jumbo that had caused the payment not to be due.
Mr. Verrilli Jr.: Well, we were reorganizing in bankruptcy--
Justice Scalia: You didn't pay it.
You didn't pay it.
Mr. Verrilli Jr.: --and we did not pay because we were reorganizing, that's right.
Now, throughout the proceedings in this case the FCC has never identified a ground, other than that single nonpayment, that would support revocation of the licenses, and that's because there isn't one.
What the FCC has done instead, and what it's done here this morning, is to instead suggest that section 525 of the Bankruptcy Code ought not apply because the FCC had a regulatory or public interest purpose for making a nonpayment an automatic sole trigger for revocation of a license, but in passing the Bankruptcy Code, Congress already weighed the public interests, and section 525 of the code is a clear expression of Congress's judgment about where the public interest lies.
Justice Scalia: But they say it's not automatic.
What do you say to that?
Mr. Verrilli Jr.: I think the record utterly and completely refutes that proposition, and it does so in the following ways.
The regulation that they cite, which is 1.2110 of their rules, and it's at page 495 of the appendix to the petition, says that the licenses cancel automatically upon nonpayment.
The face of the license says that the licenses cancel automatically upon nonpayment and for no other reason.
The announcement of the license cancellation in this case in January 2000 said that the licenses canceled automatically for nonpayment and no other reason.
Justice Ginsburg: But we know how the commission has interpreted it.
I mean, they did say, we're going to give you a moratorium.
We're going to give you a chance, and we'll make a deal for you.
You give back some of those licenses, and we'll work out a settlement, and for one year the FCC said, it's okay if you don't pay while we're considering some kind of settlement, so--
Mr. Verrilli Jr.: Yes, Justice Ginsburg, in the restructuring orders they did do that, but that doesn't make the revocation any less automatic.
All it did was move the date back in a legislative, quasi-legislative rulemaking, move the date from when it would initially have occurred to a later time.
Justice Ginsburg: --But if there had been such a settlement, then there could have been some, at least, licenses retained even though there had been the nonpayment, which is supposed to be an automatic trigger.
Mr. Verrilli Jr.: --Well, yes, Justice Ginsburg, but the date was suspended by the FCC well in advance.
The payment date was suspended well in advance of its occurrence, so a payment date never came and went without NextWave or any other licensee failing to make a payment.
All that happened here was that in advance of the payment date, the FCC moved the payment date, but when it did so, it reaffirmed--
Justice Scalia: There had not been a failure to make an earlier payment?
Mr. Verrilli Jr.: --That's exactly right, Justice Scalia.
This was suspended in advance of the due date for the first payment.
Justice Scalia: Okay, so--
Justice O'Connor: --Mr. Verrilli, let me ask you about something else.
The bankruptcy court, as I understand it, ordered a $3.7 billion reduction in the purchase price on constructive broad grounds, is that right?
Mr. Verrilli Jr.: That is right, Justice O'Connor.
Justice O'Connor: And if we were to affirm here, does the FCC have any power to prevent a bankruptcy court from reducing the price in that fashion?
Mr. Verrilli Jr.: Yes.
Justice O'Connor: That's very strange.
Mr. Verrilli Jr.: Yes, it does, and it's already been taken care of, in fact.
The question under the avoidance provisions of the Bankruptcy Code is when the debtor's obligation becomes due, and the issue here was whether the obligation became due on the date of the auction or, instead, later, at the time the licenses were awarded.
Now, that is a matter entirely within the control of the FCC.
All they have to do is make clear in their regulations when the obligation attaches.
The reason that there was a problem here was that the regulations suggested that the obligation attached later and, therefore, if the value of the asset declined from the time of the initial auction to the time of the license award, section 544 would apply.
But the FCC has changed its regulations, and at this point it is unambiguous that the obligation attaches at the time of the auction--
Chief Justice Rehnquist: Well, didn't the--
Mr. Verrilli Jr.: --and therefore 544 can't operate.
Chief Justice Rehnquist: --apply to the bankruptcy order in that case?
Mr. Verrilli Jr.: --and it did.
It's just a nonissue.
It's just... that issue is just a nonissue, and in any event it isn't... the question really here is whether the FCC, when it effectively acts as a lender, is going to be treated any differently than a private company when it acts as a lender.
Justice Breyer: That is the question.
That's my question.
As I read the statute, it seems to me, for at least your argument's sake, it is solely because, and moreover, of course this statute governs the FCC, but in reading the statute, I don't see how this statute was at all intended to govern the instance in which the Government is acting as creditor in respect to receiving payment for a good that it has sold.
Now, I base that on first reading the purposes of this in the history, and reading the whole legislative history, which will not convince some of my colleagues, but nonetheless is a factor in what I think, and I think that this is clearly about a future loan, a future situation in which the future situation, the Government is forbidden to discriminate against a human being because he was once in bankruptcy.
This seems to be to balance, to bring back into balance the Government vis-a-vis the private creditor.
If you're right in your interpretation, and I am wrong, I see no way whatsoever in which the Government would have the right to take a secured interest or in any other way collect a debt which a human being owes it for buying a license.
Now, that's my question.
I want to get your response.
Mr. Verrilli Jr.: My response is the following, Justice Breyer.
First, the text of 525 is unambiguous.
It applies to someone who is or was a debtor, and it applies to debts that are dischargeable, as well as those that have been discharged and, therefore, it is clear on the face of the statute that it applies and protects companies while they are reorganizing and before the debts are discharged, so I think on the face of the statute that's... it's not correct.
It's not the right reading of the statute.
And in terms of what it does in operation, it's this.
Now, if... if this had been a situation where the FCC had demanded cash on the barrelhead up front, and NextWave had gone and bid and gone out and borrowed that money from a bank, and had to pay the bank over time, and then filed for bankruptcy, there would be no question that that, that the debt to the bank could be reorganized and disposed of in the normal manner in bankruptcy.
Justice Scalia: Well, I'm not sure about that.
I think if you accept the FCC's argument here, they would say we have a regulatory purpose, because we want it... we want these licenses to be given to people who have the financial responsibility to operate the radio stations and so forth.
The arguments they made would continue to apply to that situation.
Mr. Verrilli Jr.: Well--
Justice Scalia: So I wouldn't say there's no question.
Mr. Verrilli Jr.: --That's a--
Justice Scalia: I think if we accept their argument here, we would probably have to accept it in the other situation.
Mr. Verrilli Jr.: --Well, I think if we... well, I think that that point is exactly right, Justice Scalia, that the Government's regulatory purpose argument, if accepted, would give them the authority to revoke licenses not only when the payment was not made to the Government, but not made to private parties.
Justice Breyer: So far, I'm trying to get the answer to my question, and so far, in terms of my interpretation, the second point you made is in terms of to the applicability, if my interpretation is right.
I want to know if it's right, and I only come up with one thing that you've said so far, which is text, which is important--
Unknown Speaker: [Laughter]
Justice Breyer: --but I learned the second year of law school, I learned the second year of law school... and obviously many of my colleagues don't agree with me, but I learned the second year of law school that when you have a text which says "all", that there are often implied, not-written exceptions.
All animals in the park.
No animals in the park doesn't necessarily apply to a pet oyster, okay, and so--
Chief Justice Rehnquist: --Well, it's not an animal.
Justice Breyer: Thank you.
An oyster in my course in biology is an animal, all right.
Unknown Speaker: [Laughter]
Justice Breyer: Maybe in yours it was a rock, or a vegetable or a mineral.
But regardless, you see my point, and my question, of course, is that since that's how I read statutes... not everybody... is that I find exceptions implicit in statutes where to fail to read that exception is to destroy the purpose of the statute, and is not backed by anything in respect to what the people who wrote it want.
Mr. Verrilli Jr.: Well--
Justice Breyer: Now, I believe it destroys the purpose of the statute because I see no way in which the Government as creditor could collect the money it's owed through a secured interest in what they've sold, if my interpretation is wrong.
Mr. Verrilli Jr.: --No, it--
Justice Breyer: Now, I'm putting that as strong as I can.
I want to get a complete answer.
Mr. Verrilli Jr.: --Two points.
First, the Government can collect its interest as a secured creditor in exactly the same way a private lender could through the bankruptcy system.
It has enormous protections through the bankruptcy system as a secured creditor.
It gets, it's 100 percent entitled under the Bankruptcy Code to the full value of the licenses, and it has numerous other protections under the code.
It can make an election under--
Justice Breyer: Can I stop you right there?
How does it do that?
Because when it goes to enforce its secured interest, I take it it's revoking the license because of the money that was due it.
And so how do you... when you go in to enforce your secured interest in the bankruptcy court, and the bankruptcy judge on the other side reads 525(c), 525 on your interpretation, how does he do it?
Because it's just like this case.
They're revoking it.
Mr. Verrilli Jr.: --You can't... the FCC, like a private lender, can't foreclose on the lien.
It has to... its debt has to be processed through the bankruptcy system.
Justice Breyer: Of course it should.
My point is, how does the bankruptcy judge at that point get around the language of 525, on your interpretation of it, since on your interpretation of it, you would be taking back the license because of failure to pay a debt.
Mr. Verrilli Jr.: Right.
They can't... under the Bankruptcy Code they can't take back the license.
They can get their secured claim paid to the same extent that a private lender could, but they can't--
Justice Breyer: So they cannot take a secured interest in the license?
Mr. Verrilli Jr.: --Yes, they can, and... but just as--
Justice Scalia: They don't take the license back if they cause the debtor to have to sell the license and to take the money from the sale of the license and give it to the FCC.
Isn't that what's going on?
That's different from a cancellation of the license.
The license subsists, and the debtor can sell it to somebody else, or the bankruptcy court on behalf of the debtor can sell it to somebody else, is that right?
Does that need approval from the FCC?
Mr. Verrilli Jr.: --The transfer would, to somebody else would need approval from the FCC, but the key point here is that section 525--
Justice Scalia: But that's different from a cancellation, isn't it?
Mr. Verrilli Jr.: --Yes, it is different from a cancelation, and the key point here I think, Justice Breyer, in answer to your question ultimately, is that 525 is in the Bankruptcy Code to protect the right to reorganize.
What it says is that those who hold Government licenses cannot be denied the ability to invoke the bankruptcy process and reorganize solely because they do what the Bankruptcy Code allows them to do.
Without this protection, licensing agencies would have the ability to force insolvent debtors to liquidate, because it would have the power to revoke their permission to do business solely because they hadn't paid a debt, or solely because even they were in bankruptcy, and that would--
Chief Justice Rehnquist: Can the FCC... can an FCC licensee encumber the license?
Can it pledge the license to some... to a bank that's giving it a loan?
Mr. Verrilli Jr.: --Yes, it can.
It can give it as a... it can... the answer to that is yes.
There are some restrictions on it, but the answer to that is yes, it can.
If I could, I'd like to get back to the question of whether this was, in fact, an automatic revocation, and the reconsideration order, which is the order under review here, is the order in which the FCC says principally that it departed from the automatic character of the revocation, but that reconsideration order says no fewer than 14 times by my count that the revocation was automatic, and there's one statement in that in particular which I think should put to rest as a factual matter the question of whether this was anything other than an automatic cancelation, and that's at page 74a of the appendix to the petition, and it's right at the bottom of the page, before the footnote.
And the FCC says in the reconsideration order, thus, the only way that NextWave could have avoided the loss of its licenses, even under the rule interpretation it urges, was to have avoided default by making full and timely payment on or before the payment due date.
If the only way that NextWave could have avoided default was by making the payment, then there is nothing else that could have been shown, and nothing else that could have happened in the reconsideration process or any waiver process, that would have provided an additional ground for revocation.
And if I could also point the court to a statement on the prior page, page 73a: For all these reasons we reject NextWave's interpretation of our default and cancellation rules and reaffirm that the failure to make full payment in a timely manner, following exhaustion of all applicable grace periods, constitutes a default and results in the automatic cancellation of the license without further commission action.
Their theory is that this happens by operation of law on the day after nonpayment.
It is as automatic as anything can be, and nothing about the reconsideration process, and nothing about their waiver authority changes that one iota.
Justice Ginsburg: Well, at least according to this presentation the FCC said that it does have discretion to grant relief from the automatic cancellation.
Mr. Verrilli Jr.: Well, but they said in the reconsideration order that they were not going to do that, ever, because it was an automatic cancellation.
They also said in the restructuring orders, Justice Ginsburg, that you referred to earlier, in each of the restructuring orders they said they would not grant a waiver of the payment deadline under any circumstances, and then when individual licensees sought waivers, the FCC rejected the waiver requests, and it cited back to those provisions in the restructuring order saying, we told you this was an automatic rule, and we reject your request, and it did so even in instances, in two cases where the licensees were providing service.
And so there's just no question that this was an automatic cancelation rule and therefore precisely at the core of what section 525 forbids the FCC or any other licensing agencies from doing.
If I may, I want to turn to the question of whether there is any conflict between the FCC's exercise of its authority under section 309(j) and the Bankruptcy Code.
The answer is, as a statutory matter there is no conflict, because the FCC was not required to have an installment payment plan, and even if it were required to have one there wouldn't be a conflict because Congress didn't say that the FCC had to make license revocation automatic upon nonpayment.
So the FCC's argument really is an implied repeal argument here, that 309(j) implicitly repeals 525 in some applications, but--
Justice Kennedy: Assuming we think there's a conflict, is there any authority for the agency's assertion that it has the authority to determine which statute outweighs the other?
Mr. Verrilli Jr.: --Yes, and the authority is exactly contrary to the position that the FCC deserves deference.
The FCC deserves deference only with respect to interpretation of its own statute, not with respect to the Bankruptcy Code.
So the answer is clearly that they don't get any deference, and... but there isn't any conflict.
All there is is the FCC... there isn't any statutory conflict.
All there is, the only conflict arises from the FCC's desire to make this an automatic cancelation rule, and the conflict is between an FCC policy choice and a directive from Congress.
When the conflict is at that level, there's no doubt about what the answer is, which is that the directive from Congress prevails.
Justice Scalia: If they just simply changed their rules to say the FCC "may" cancel the license in the event of the nonpayment of any installment, that would be enough?
Mr. Verrilli Jr.: No.
Justice Scalia: No?
Mr. Verrilli Jr.: No, because what 525 forbids are the grounds on which the license is revoked, so if the license is revoked solely because of nonpayment of dischargeable debt, then whether there's a rule or not--
Justice Scalia: Oh, it isn't solely because of that.
That is a necessary but not a sufficient condition.
the FCC would be saying, we will consider the regulatory situation.
If you fail to make a payment, you are revocable, but we won't revoke necessarily.
It depends upon the regulatory situation.
Mr. Verrilli Jr.: --I think that would violate 525, but for a different reason.
Justice Scalia: Ah, okay.
Mr. Verrilli Jr.: And it's this.
525 doesn't merely forbid revocation for nonpayment.
It forbids discrimination, and it forbids imposing conditions solely because of nonpayment, solely because of being in bankruptcy, so--
Justice Ginsburg: What does the word "solely" do?
I can follow what you just said if it simply said because of, but Congress wrote solely, and that has to have some function.
Mr. Verrilli Jr.: --I think it does have several functions.
For example, Your Honor, the FCC has a build-out rule for these licenses, says you have to build them out within 5 years, and to serve, a requirement that we were in compliance with, by the way.
But if we hadn't been in compliance with them and the FCC had moved to revoke the licenses because we weren't in compliance with the build-out rule, and we had said, well, the reason we are not in compliance with the build-out rule is that we're in bankruptcy and we can't pay the vendors to build it out, that would be a situation in which the FCC could enforce its rule, even though at some level it is because we were in bankruptcy.
It's just not "solely" because.
It's because we violated a neutral rule that was not focused solely on nonpayment.
And I think there would be other circumstances in which the fact of nonpayment could be a consideration in a broader or a different... in a broader or different set of circumstances.
But when you have what you have here, is where it is the only consideration, the only factor, the determinative consideration, that is the paradigm case of violation of 525.
What the FCC has done, it's--
Argument of Laurence H. Tribe
Chief Justice Rehnquist: Thank you, Mr. Verrilli.
Mr. Tribe, we'll hear from you.
Mr. Tribe: Mr. Chief Justice, and may it please the Court:
Clearly, we're dealing in 525 with something that is an exercise of regulatory power, and as several members of the Court have noted, it's always possible to say, even though we are revoking or canceling this license automatically because you didn't make the payment, we have other motives in mind, responsible, financially responsible drivers on the road.
We are not simply out to get you because of the dollars.
That's, of course, not what this statute is about.
The whole point of the Perez decision was to get rid of Kesler and Reitz, which required peering into the mind of the bureaucrats, not always a wonderful vision to behold, and not clear.
This is a causation provision, and let me turn to Justice Ginsburg's question from the perspective of creditors who need to be able to rely on a bright line test of whether something was done solely because of nonpayment of a dischargeable debt, or solely because of insolvency, or solely because of an invocation of Chapter 11.
The word solely, I think, does serve a function there, and that is, in its absence I suppose it would be possible for a licensee in regulatory default, a licensee who hadn't built out, to hide behind the existence of a fiscal default and say, you see, it's because of the fact that I didn't make a payment, not because I didn't build out.
Then one has a complicated mess, and from the point of view of creditors who need to know whether an agency is going to pull out the lifeline without which this entire edifice collapses and is just a bunch of hardware, not worth anything more than the separate parts, from the point of view of creditors who need to know, it seems to me a very clear test is needed, and that is, was this the sole trigger?
Have they come up with some other substantive, independent basis which either was the necessary cause or a sufficient cause?
That's what the D.C. Circuit said, and it makes sense.
Justice Stevens: Mr. Tribe, what do you say in response to Justice Breyer's point that the statute really deals with a situation in which the Government agency is not the creditor?
That's what it basically was--
Mr. Tribe: Well, I... in a way, I think that that makes our point all the stronger, that is, even when the agency has no conflict of interest, it might not be in it for the money, and one wonders here why, for example, why they don't yank the license when the debt is owed to private creditors?
Doesn't that show in just the same way that they're not reliable?
That is, in this very case--
Justice Breyer: --No, no... well, they want their money is all.
Mr. Tribe: --Well, money--
Justice Breyer: They want their money, but there are taxicab licenses, there are nuclear power licenses... licensing is the most common thing in the world.
You often pay for it, and what I really am worried about is, imagine they took a secured interest in the license, and on your interpretation, how do they get the taxicab license back--
Mr. Tribe: --Well--
Justice Breyer: --which the guy never paid the $100,000 for?
Mr. Tribe: --the license on my interpretation--
Justice Breyer: Yes.
Mr. Tribe: --does not cancel and at confirmation the license is one of the assets of the estate, and at that point--
Justice Breyer: Well, they could get it back... in other words, they could take it back because they didn't revoke it.
Mr. Tribe: --No, they don't take it back.
That is, when... there are a number of things in the estate at confirmation.
Justice Breyer: I'm a creditor, I'm a private creditor, I say I have a secured interest in this, it's mine, okay.
I sell it at auction.
Now, the FCC--
Mr. Tribe: I'm sorry, Justice Breyer.
The bankruptcy court is filled with elaborate rules about when you can and cannot foreclose.
That is, an asset is part of the estate at confirmation, and whether you're going to be able to get your money back is a function of whether you are under or oversecured.
There are provisions in 1111(b) for dealing with both situations.
Your situation is no worse when you are a regulator than the Bank of America, or one of the clients in our case, Citicorp, and no better.
Justice Breyer: --That's the part that's precisely bothering me, my situation is no worse.
When I read the statute, it seems to me my situation is worse, because if the statute applies here, it applies there, and you and your colleague both tell me no, that isn't so, and if you can show me it isn't so, my problem disappears.
Mr. Tribe: What I'm saying, Justice Breyer, is that after bankruptcy, if NextWave, for example, were to emerge from bankruptcy they would still have the license, but only on conditions in which you as the FCC, like other creditors, in light of your secured interest, had taken an appropriate piece of the pie.
You don't get it all, that's the point.
Nor does a private creditor get to grab the license and all the value from all the other creditors and, in fact, when you are an agency that is wearing really two sets of shoes, the ordinary regulator's running shoes but also the wing tips of the creditor agency, it makes the situation worse, not better.
That is, this law is designed to assure that even the agency, which does not have a monetary interest, can't simply yank all the value for itself because it has the power over this license.
If the agency, on top of all that, is a creditor and has that additional set of incentives, then it's all the worse.
You wonder, for example, why it is that in the MMDS licenses, in which there are licenses that are held by a number of bankrupt licensees who did not make the payments they promised to make, why it is that the FCC does not regard them as not having been what they looked like at the time of the bid.
The reason is that it's been paid in full.
So it really is a situation in which the FCC's position as a creditor should not redound to its credit.
If anything, that makes this statute all the more vital.
The capital formation that is necessary to make 309(j) work, to make it possible, Justice Scalia, sometimes not to demand all the money up front, but to have something more creative, maybe demand letters of credit, guarantees, none of that can work if creditors who put in over half a billion dollars, not in a gamble but on a very careful business plan that was completely carried out, they're not providing service, but Catch-22, it's because their attempt to emerge and fully cure any default was frustrated by the agency that saw pie in the sky, large numbers.
In that situation, for the agency to be able to collapse the capital formation here tells us something rather unpleasant about the future.
How likely is it that Citicorp and the California and Kansas pension funds and all of the other organizations that have put money in on reliance on the way section 525 works will do this again next time around?
The formation of capital, the market on which the FCC chose to rely, choosing to rely in the capacity of a first lender, with no more or less secured protection than others, that whole system depends on, in the most literal sense, the rule of law.
It does not depend on the question whether we can attribute to the regulator some motive that does not relate solely to the money.
So if the system is to work the way the FCC claims, 525 is a dead letter.
Now, if you were right, Justice Breyer, if there really was a problem that couldn't be solved in the way the confirmation rules work, in the way the pie is divided up, then maybe, as with perishable commodities, there would be a problem for Congress to solve.
Congress has in section 523 enumerated 18 categories of debts that are not dischargeable in bankruptcy, and sometimes it does it in another statute, not always in the Bankruptcy Code.
These are policy judgments about whether something is unique about the situation that requires treating the Government in some different way, the way the Department of Agriculture is treated.
Chief Justice Rehnquist: Thank you, Mr. Tribe.
Mr. Tribe: Thank you.
Rebuttal of Paul D. Clement
Chief Justice Rehnquist: Mr. Clement, you have 3 minutes remaining.
Mr. Clement: Thank you, Mr. Chief Justice.
Let me first address Justice O'Connor's very proper concern that licensees are going to be able to enjoy their licenses for much less than they agreed to pay the commission.
That is not a dead letter and, in fact, one of the cases that is being held for this case involves Kansas PCS, where the bankruptcy court approved the plan that gave the FCC 5 cents on the dollar for the value of its licenses.
Now, it's true that one mechanism to get the licenses for less than they paid for, the fraudulent conveyance theory, is something that the FCC can address.
That was the GWI bankruptcy, where the FCC only got 16 cents on the dollar.
But there's a second way to do it, which is to only give the FCC the value for its security interest, the value of the licenses at that point, and the bankruptcy court did that in Kansas PCS, and only gave the commission 5 cents on the dollar.
Second, let me address Justice Kennedy's concern with, where's the authority for the FCC to take into account bankruptcy policy concerns?
The authority comes from a D.C. Circuit decision called LaRose, which is cited on page 79a of the decision, the reconsideration decision that's under review.
The LaRose decision is a D.C. Circuit decision that tells the FCC that it must take bankruptcy policy considerations into account.
Justice Scalia: It's not binding on us, certainly?
Mr. Clement: --Well, it is binding on the FCC, though, and the FCC tried to do its best to take bankruptcy considerations into account.
Now, if it failed to do it properly--
Justice Kennedy: But this, they're saying that they're not going to take bankruptcy considerations into account.
Mr. Clement: --No, they did.
They did, and again I think they... one of the reasons they took bankruptcy considerations into account is by extending payments for all the C-Block licensees for 18 months.
But if you think the problem here is that the FCC didn't do the right balancing of bankruptcy policy and telecommunications policy, then the D.C. Circuit or this case could reverse for an arbitrary capriciousness, but that's not the role of 525.
525 is an exceedingly narrow provision that simply prevents a regulator under any circumstances from canceling a license solely because, and here it's just not true that the failure to make a payment was the sole trigger, because you have to look at it in context, and what triggered default is the failure to make a payment of a payment that was due for a particular reason.
Now, anybody in... any FCC licensee could have gone to the commission and tried to get a further extension of that payment deadline.
They'd already gotten extended 18 months.
They could have gotten extended even further, and it's hard for me to understand how there's a sole trigger when the very payment deadline that is supposed to be... trigger the automatic cancelation is itself the reflection of a multifactor public interest determination by the commission.
They extended it 18 months but no further, based on a consideration of the public interest.
Now, on Justice Breyer's concern about what's going on here, I think your concern is exactly right, and what sense does it make from a bankruptcy policy to disable the Government to make installment payments?
Justice Breyer: Exactly right.
Why didn't you argue it?
Mr. Clement: Well, I think... no, I think... I think--
I think... there's two reasons we didn't argue it.
One, we did... there is that flavor in the brief, but the other reason is, you at one point said, doesn't the commission just want the money?
That's actually not true.
What we want is, we want the licenses back--
Justice Breyer: I know, but if they did, it's such an obvious argument that I feel there's something wrong with it if you didn't argue it.
Mr. Clement: --Don't worry... thank you, Your Honor.
Chief Justice Rehnquist: Thank you, Mr. Clement.
The case is submitted.
Argument of Speaker
Mr. Verrilli Jr.: 01-653, Federal Communications Commission versus Nextwave Personal Communications and a companion case will be announced by Justice Scalia.
Argument of Justice Scalia
Mr. Scalia: These cases come to us on writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit.
The Federal Communications Commission awarded Spectrum Licenses to Nextwave Personal Communications and allowed Nextwave to pay for these licenses in installments.
The company subsequently filed for Chapter 11 bankruptcy and suspended payments to all creditors including the FCC.
Its plan of reorganization envisioned repayment of its obligations to the FCC but the FCC objected to the plan asserting that Nextwave's licenses had been cancelled automatically when the company missed its payment deadline.
Nextwave filed a petition with the FCC seeking reconsideration of the license cancellation and upon denial appealed to the D.C. Circuit asserting that the cancellation violated the Bankruptcy Act and thus should be set aside under the Administrative Procedure Act.
The Court of Appeals agreed, we granted certiorari and we now affirm.
The Administrative Procedure Act requires Federal Courts to set aside Federal Agency action that is not in accordance with law.
The question before us is whether the FCCs cancellation violated Section 525 of the Bankruptcy Act which provides in relevant part that “a governmental unit may not revoke a license to person that is a debtor under this Title, solely because such debtor has not paid a debt that is dischargeable” in bankruptcy.
Here the proximate cause for the FCC’s revocation of the licenses was not Nextwave’s failure to make the payments that were due.
That suffices to invoke Section 525.
Contrary to petitioner’s contention, it makes no difference whether the agency has some regulatory motive behind its action in canceling for nonpayment.
When the statute refers to failure to pay a debt as the sole cause of cancellation, it cannot reasonably be understood to include among the other causes whose presence can preclude application of the prohibition, the government unit’s motive in adopting a cancellation for nonpayment rule such a reading would deprive Section 525 of all force since it is hard to imagine a situation in which a governmental unit would not have some further motive behind the rule.
Petitioner’s contend that Nextwave’s license obligations to the Commission are not “within the meaning of 525 debts that are dischargeable in bankruptcy" because they function as regulatory conditions.
Under the Bankruptcy Code, debt is defined to mean liability on a claim and claim in turn is defined to include any right to payment.
In short, a debt is a debt even when the obligation to pay it is also a regulatory condition.
Petitioners also argued that respondent’s obligations are not dischargeable in bankruptcy because it is beyond the authority of Bankruptcy Courts to alter or modify regulatory obligations.
Dischargeability however is not tied to the existence of such authority.
A preconfirmation debt is dischargeable unless it falls within an expressed exception.
Artistically symmetrical with petitioner’s contention that the Bankruptcy Court has no power to alter regulatory obligations is their contention that the D.C. Circuit has no power to modify or discharge a debt.
Just as the former is irrelevant to whether the Bankruptcy Court can discharge a debt, so also the latter is irrelevant to order the D.C. Circuit can set aside agency action that violates law.
The court did not seek to modify or discharge the debt but merely prevented the FCC from violating Section 525.
Finally we reject the contention that our interpretation of Section 525 creates a conflict with the Communications Act.
It does not obstruct the functioning of the Spectrum Auction Provisions since nothing in those provisions demands that cancellation be the sanction for failure to make agreed upon periodic payments.
Indeed, nothing in those provisions even requires the Commission to permit payment to be made over time.
What petitioners described as a conflict boils down to nothing more than a policy preference on the FCC's part for one, selling licenses on credit, and two, canceling licenses rather than asserting security interests in licenses when there is a default.
Such administrative preferences cannot be the bases for denying respondent rights provided by the plain terms of law.
While the FCC retains security interest in these cases, it did not seek to enforce those security interests but opted to eliminate the licenses to the forbidden regulatory step of revoking them.
The question whether Section 525 would also prevent the Government’s enforcement of its security interests is neither presented nor answered today.
The opinion is joined by all Justices except as to Part 3 Justice Stevens who has filed a concurring opinion, and as to the entire opinion and judgment, Justice Breyer who has filed a dissenting opinion.