Supreme Court Docket Report - 2001 Term, Number 11 / March 4, 2002

Co-authored by Ms Miriam R. Nemetz & Mr Andrew H. Schapiro

Bankruptcy Code ó Communications Act ó Cancellation of Spectrum License for Failure to Make Timely Payments. Section 525(a) of the Bankruptcy Code, 11 U.S.C. 525(a), provides that a "governmental unit" may not revoke a license or other similar grant to a bankrupt "solely because" the bankrupt "has not paid a debt that is dischargeable" in a bankruptcy. In Federal Communications Comm'n v. NextWave Pers. Communications Inc., No. 01-653, and Arctic Slope Reg'l Corp. v. NextWave Pers. Communications Inc., No. 01-657, the Supreme Court granted certiorari to determine whether Section 525(a) of the Bankruptcy Code takes precedence over Federal Communication Commission ("FCC") rules on spectrum license auctions, which provide that spectrum licenses obtained at auction are automatically cancelled upon the winning bidder's failure to make timely payments to fulfill its bid.

In 1995, a group of former telecommunications executives formed NextWave Personal Communications Inc. and NextWave Power Partners Inc. (collectively "NextWave") for the purpose of bidding on spectrum licenses and operating a personal communications service. At spectrum license auctions in May and June 1996, NextWave bid $4.74 billion in total, winning 63 licenses. NextWave deposited $474 million as a down payment, and filed applications for the licenses. On January 3, 1997, the FCC granted NextWave its licenses, took a security interest in each, and filed financing statements to perfect its claims. Each license stated that it was "conditioned upon the full and timely payment of all monies due" and that failure to comply with the obligation would "result in the automatic cancellation" of the license.

On June 8, 1998, NextWave filed for Chapter 11 bankruptcy protection, and made no further payments on its licenses. Instead, NextWave alleged in bankruptcy court that its $4.74 billion license obligation was avoidable under ß 544(a) of the Bankruptcy Code, 11 U.S.C.ß 544(a), as a "fraudulent conveyance." According to NextWave, the company had not received reasonably equivalent value for incurring the obligation because, by the time the FCC actually conveyed the licenses in 1997, the licenses' value had declined to less than $1 billion. See NextWave Pers. Communications Inc. v. FCC, 235 B.R. 263, 269 (Bankr. S.D.N.Y. 1999) ("NextWave I"); see also 235 B.R. 277, 290 (Bankr. S.D.N.Y. 1999) ("NextWave III").

The bankruptcy court...