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The U.S. Supreme Court handed a multibillion-dollar victory to NextWave Telecom Inc. in January. The court ruled that the company’s bankruptcy declaration in 1998 prevents the Federal Communications Commission from taking back valuable wireless spectrum licenses that NextWave won at auction. The 8-to-1 ruling was a sharp defeat for the FCC, which argued that its right to reauction the licenses trumped the bankruptcy law. That regulatory motive is “irrelevant” under bankruptcy law, Justice Antonin Scalia stated for the majority. The case goes back to 1996, when NextWave bid $4.7 billion for the licenses under a program aimed at bringing smaller companies into the telecom industry. After the company made a down payment, the industry plummeted, and NextWave declared bankruptcy. It suspended payments to the government and other creditors. The FCC revoked the licenses in 2001 and reauctioned them to a revitalized wireless industry; the agency received bids from telecommunications giants totaling almost $16 billion. In reaction, NextWave went to court to keep the licenses, which are valued at more than $6 billion. Too Bad For FCC NextWave chairman and CEO Allen Salmasi said the ruling “clears the way for us to move forward and complete our reorganization.” The company plans to pay the government in full for the licenses. Larger telecom companies, including those that participated in the second auction after NextWave’s bankruptcy, may now seek to buy some of the licenses from NextWave. Not surprisingly, NextWave’s lead lawyer, Donald Verrilli, Jr., a partner in Jenner & Block’s Washington, D.C., office, cheers the outcome: “This case had caused a paralysis in the industry, so this is a victory for consumers, because now the spectrum can be put to use.” NextWave cocounsel G. Eric Brunstad, Jr., of the Hartford office of Bingham McCutchen, praises the ruling, calling it “a fabulous decision for the integrity of the bankruptcy system.” He adds: “The Court is saying we are not going to be creating policy exceptions from bankruptcy protection for government agencies. If the FCC could have done this here, then the [Internal Revenue Service] could also in other cases.” Bankruptcy Code Trumps FCC In making its decision, the high court pointed to the specific words of the bankruptcy law, which bars government agencies from canceling licenses of debtors in bankruptcy “solely because” they have not made payments. Justice Scalia acknowledged that “some may think . . . that there ought to be an exception for cancellations that have a valid regulatory purpose.” He added, however, that, “besides the fact that such an exception would consume the rule, it flies in the face of the fact that, where Congress has intended to provide regulatory exceptions to provisions of the Bankruptcy Code, it has done so clearly and expressly.” In dissent, Justice Stephen Breyer said the majority had interpreted the bankruptcy law too literally, without considering the statute’s purpose. He said that a sign reading “No vehicles in the park” should not be taken literally, since it “does not refer to baby strollers or even to tanks used as part of a war memorial.” Harvard Law School professor Laurence Tribe, who represented NextWave’s creditors, also applauds the ruling. He says it will allow smaller, less well financed companies to compete in telecommunications without the fear that the FCC could pull back their licenses. This article originally appeared in Legal Times, a sibling publication of Corporate Counsel and a part of American Lawyer Media.

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