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A Southern District of New York bankruptcy judge had no right to block the Federal Communications Commission from re-auctioning billions of dollars of radio spectrum licenses, the 2nd U.S. Circuit Court of Appeals has ruled, in a decision by Judge Dennis G. Jacobs. Granting a writ of mandamus to the FCC in In re Federal Communications Commission, 99-5063., a united panel told Judge Adlai S. Hardin Jr., for the second time in six months, that FCC licensing decisions are “outside the limited jurisdiction of the bankruptcy court.” NextWave Personal Communications Inc. successfully bid $4.74 billion in 1996 for 63 personal communications services (PCS) spectrum licenses, putting up 10 percent of that amount in cash and the rest in a series of promissory notes. But when NextWave learned that subsequent auctions resulted in other companies paying significantly lower amounts for licenses, it sought relief from the FCC and the U.S. Court of Appeals for the District of Columbia Circuit. When that relief was denied, NextWave filed a Chapter 11 petition in the Southern District and began an adversary proceeding against the FCC, alleging that the transfer of licenses was a fraudulent conveyance and the debt to the FCC was therefore avoidable. Judge Hardin found, however, that the FCC was acting solely as a creditor, and not a regulator, in seeking to collect on the promissory notes. He also found that at the time the licenses were granted, they were worth just over $1 billion, and that anything in excess of that amount was voidable as a constructive fraud. Although Judge Hardin was upheld in the district court, the Second Circuit reversed in November 1999, holding that the purpose of the spectrum auctions was primarily regulatory and not fiscal. As such, the Second Circuit said that the bankruptcy court had intruded on the FCC’s exclusive jurisdiction over spectrum licensing and the exclusive jurisdiction of the courts of appeals to review FCC’s licensing decisions. The Second Circuit said that lower courts were “utterly without power” to order that Nextwave be allowed to retain the licenses. Following the ruling, NextWave filed a modified reorganization plan under which it would pay the FCC as the promissory notes became due. On Jan. 11, NextWave, although not part of its modified plan, offered to pay the FCC the entire amount in a lump sum. But the following day, the FCC put the licenses at issue up for re-auction in a public notice. On NextWave’s motion, Judge Hardin issued an order declaring the public notice null and void. Then, on Feb. 7, he granted NextWave’s motion for an order granting an automatic stay. The Second Circuit was not pleased. In a ruling by Judge Jacobs, the court noted its earlier decision, in which it stated the facts presented a “paradigmatic instance of the FCC’s exclusive power over licensing.” On this appeal, he said “the FCC’s public notice of re-auction presented the bankruptcy court with a variation on the same question: whether it could undo the consequences of NextWave’s failure to fulfill the timely-payment requirement under the licenses, as determined by the FCC.” Here, he said, Judge Hardin found that, although full payment is a regulatory condition, timely payment is not. “Recognizing that it lacked power to review FCC regulatory actions, the bankruptcy court sought to cast the dispute in non-regulatory terms,” Judge Jacobs said. “The FCC need not defend its regulatory calculus IN THE BANKRUPTCY COURT; whenever an FCC decision implicates its exclusive power to dictate the terms and conditions of licensure, the decision is regulatory.” He said further that “our prior opinion clearly and repeatedly emphasizes that the bankruptcy court is without power to review the FCC’s regulatory actions.” The court ordered Judge Hardin to vacate his February order denying NextWave’s motion for enforcement of the automatic stay. Judge Robert D. Sack and Senior Judge Joseph M. McLaughlin joined in the opinion. Assistant United States Attorneys Daniel S. Alter and Gideon A. Schor represented the government. Donald B. Verrilli Jr. and Ian Heath Gershengorn of Jenner & Block; Deborah L. Schrier-Rape and Gregory H. Bevel of Andrews & Kurth represented NextWave.

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