WASHINGTON, Jan. 27 (UPI) -- The Supreme Court ruled 8-1 Monday that bankrupt NextWave Personal Communications Inc. may keep the wireless licenses it bought at auction, despite the fact that it stopped payments on them.
The court majority ruled that section 525 of the U.S. Bankruptcy Code "prohibits (the FCC) from revoking licenses held by a debtor in bankruptcy upon the debtor's failure to make timely payments to the commission for the purchase of the licenses."
The decision in an opinion written by Justice Antonin Scalia will cost the government the billions of dollars it could have received from a re-auction of the licenses.
Writing separately from the majority, Justice John Paul Stevens said the law was ambiguous, but he joined the majority because Congress clearly intended the law to be sweeping.
Justice Stephen Breyer was the only dissenter, saying the statute's language was "limited in scope."
"The court's literal interpretation of the statute threatens a serious anomaly," Breyer wrote. An "anomaly" in this sense is a deviation from a common rule.
"It seems to say that a government cannot ever enforce a lien on property that it has sold in the installment plan as long as (1) the property is a license, (2) the buyer has gone bankrupt, and (3) the government wants the license back solely because the buyer did not pay for it."
Every private seller has the right to repossess, Breyer said. "Why should the government ... and the government alone, find it impossible to repossess a product, namely, a license, when the buyer fails to make installment payments?"
The case that brought Monday's ruling pitted the U.S. Bankruptcy Code against the FCC's rules for authorized spectrum auctions.
The government controls channels of radio transmission, but leases them out for limited periods. Congress authorized the FCC to award licenses for particular transmission bandwidths in 1993.
NextWave Personal Communications was formed to participate in the FCC's "C-Block" license auctions in 1995. It was declared the high bidder for 63 licenses after submitting winning bids totaling$4.74 billion.
NextWave Power Partners was formed to participate in the commission's "F-Block" license auctions in 1997, and was declared the winner for 27 such licenses after submitting bids totaling about $123 million.
Each license was granted on the condition that "full and timely payment of all monies due" would be made, according to FCC rules.
After winning the auctions, NextWave and a number of other entities petitioned the FCC to restructure their payments, citing the high cost of their own bids.
The commission refused. The FCC said it would be unfair to other bidders, but gave C-Block licensees until July 1998 to resume payments. F-Block licensees were given until October 1998.
Instead of making the payments, however, both NextWave entities filed in Manhattan for bankruptcy reorganization under Chapter 11 of the Bankruptcy Code.
NextWave then went further, filing suit in bankruptcy court to avoid making the payments, saying they were "constructively fraudulent" given the actual value of the licenses. NextWave asked that $3.72 billion of its $4.75 billion debt be canceled.
A bankruptcy court agreed, ruling that NextWave was responsible for only $1.023 billion of the debt, but could keep the licenses. A federal judge also agreed, but a federal appeals court reversed.
At that point, NextWave offered in a letter to the FCC to pay the discounted price on the licenses in one lump sum, rather than make payments on the larger figure. The FCC responded by issuing a public notice that the licenses would be re-auctioned.
A federal appeals court in Washington finally reversed the FCC's decision in June 2001, and sent the case back to the commission for a rehearing.
The appeals court said its reading of the Bankruptcy Code banned the FCC from re-auctioning the licenses.
The FCC then asked the Supreme Court for review. The justices heard argument Oct. 8 and handed down a decision Monday.
Writing for the majority, Scalia asserted the literal meaning of the law and spent a good bit of time trying to knock down Breyer's dissent.
Scalia spurned Breyer's "serious anomaly" example, saying a private seller can repossess something only if he "has taken a security interest in the product," something not possible with an FCC license.
"In any event," Scalia said, "if there is an anomaly it is one that has been created by Congress ... "
Monday's decision upholds the appeals court ruling.
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(No. 01-653, FCC vs. NextWave.)
