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There is a perception among bankruptcy and nonbankruptcy lawyers that the Bankruptcy Code, 11 U.S.C. � 101 et seq., is a comprehensive scheme of statutory law that provides the complete basis for all activities occurring in a bankruptcy proceeding. In-house counsel often are reluctant to delve into bankruptcy matters because of the fear that they have insufficient background to handle the issues. As Judge Fortunato P. Benavides of the 5th U.S. Circuit Court of Appeals recently stated: “Few bodies of law, including the Internal Revenue Code or federal securities regulations, rival the complexity of the federal Bankruptcy Code. As a result of this complexity, bankruptcy practice is highly specialized.” While Benavides is correct in his view of the Bankruptcy Code and the practice of bankruptcy law, bankruptcy lawyers, particularly those involved in Chapter 11 business reorganizations, increasingly are bombarded with issues of nonbankruptcy federal law and state law that have a substantial impact on the outcome of their cases. Additionally, courts seemingly have become less enthused with the theory that has long been the mantra of bankruptcy lawyers — that bankruptcy law and the Bankruptcy Code pre-empt other federal and state law. Moreover, business bankruptcy lawyers increasingly are presented with questions relating to modern business and technology that don’t easily fit into the definition and structures of a code created as recently as 1978. The idea that state and other federal law determine the property rights of the bankruptcy estate is not new. While � 541 of the Bankruptcy Code defines the parameters of the bankruptcy estate, parties are forced to explore the substantive law of the state of the appropriate jurisdiction to color in the outlines the Bankruptcy Code establishes. For example, in Safeway Managing General Agency Inc. for State and County Mutual Fire Insurance Co. v. Osherow (In re: Davis) (2001), the 5th Circuit turned to state law to deduce whether the bankruptcy estate holds claims for alleged negligent failure to settle personal-injury claims or “Stowers rights.” Also, in West v. Balfour Beatty Construction Inc. (2002), the 5th Circuit examined whether indemnity rights are available to a Chapter 7 trustee against a corporate employer for certain business torts of an employee. However, courts of appeals have given increasing deference to state law and other federal law where there appears to be some overlap between the comprehensive bankruptcy scheme and other laws. In particular, appellate courts have cautioned bankruptcy practitioners not to take themselves or their Bankruptcy Code too seriously in the area of taxation. In denying a corporate debtor’s attempt to limit the amount of a tax claim based upon the claimed superiority of the Bankruptcy Code to provisions of the Texas Tax Code, the 5th Circuit in Universal Seismic Associates Inc., et al. v. Harris County, et al. (2002) reminded the participants that: “In areas of law where state and federal regulations are coincident, this Court is enjoined from seeking out conflicts between the two where none clearly exists.” Additionally, representatives of state taxing authorities touted the U.S. Supreme Court’s decision in Seminole Tribe of Florida v. Florida as the end of the sovereign immunity waiver of � 106 of the Bankruptcy Code. One of the most significant, and perhaps most alarming to bankruptcy practitioners, examples of how the primacy of bankruptcy laws is being eroded is the dispute between NextWave Personal Communication and the Federal Communication Commission. As detailed in FCC v. NextWave Personal Communication Inc. (In re NextWave Personal Communication Inc.), a 1999 decision by the 2nd U.S. Circuit Court of Appeals, NextWave was the winning bidder for certain spectrum licenses auctioned by the FCC pursuant to its mandate to regulate the use of radio spectrums for the “public interest, convenience or necessity” under the Federal Communications Act, 47 U.S.C. � 307(a). Pursuant to its rule-making authority, the FCC allowed NextWave to pay 10 percent down on its bid of $4.74 billion for the “C-block” licenses and pay the balance of the bid through the issuance of promissory notes. However, the opinion noted that by the time NextWave was required to issue these notes, subsequent auctions of other spectrum licenses indicated a dramatic drop in the value of the licenses, including the C-block licenses that were granted to NextWave. After unsuccessfully petitioning the FCC for relief, NextWave sought protection under Chapter 11 and immediately moved to avoid the amount of the promissory notes that exceeded the value of the licenses as fraudulent transfers. Notably, the adversary proceeding actually asserted a state law fraudulent transfer claim statutorily incorporated into the Bankruptcy Code pursuant to the strong-arm provision of 11 U.S.C. � 544. The bankruptcy court and district court ruled in favor of NextWave, allowing NextWave to keep the licenses while avoiding the obligations to pay the promissory notes that exceeded actual value. However, the 2nd Circuit reversed and adopted the FCC’s argument that the bankruptcy court lacked jurisdiction to alter the relationship between NextWave and the FCC because the “full payment requirement” was part of the FCC’s regulatory scheme. In adjusting the NextWave bid, the 2nd Circuit stated that ” … the bankruptcy and district courts impaired the FCC’s method for selecting licenses by effectively awarding the licenses to an entity that the FCC determined was not entitled to them.” By its ruling, the 2nd Circuit appears to say that the federal grant of rule-making authority to the FCC trumps the federal grant of authority to alter debtor-creditor relationships enumerated in the Bankruptcy Code. Although the 2nd Circuit made several remarks indicating that where only the debtor-creditor relationship was at issue, the bankruptcy court would have jurisdiction, it appears that where any rationale for rule-making authority could be articulated, that FCC authority trumped the provision of the bankruptcy court. The court wrote: “To the extent that the financial transaction between the two do not touch upon the FCC’s regulatory authority, they are indeed like the obligation between ordinary debtors and creditors. NextWave’s arguments that the FCC seeks to frustrate the purposes of the bankruptcy laws are therefore misplaced. We are merely holding that NextWave may not collaterally attack or impair in the bankruptcy courts the license allocation scheme developed by the FCC.” This result was re-emphasized by the 2nd Circuit in a subsequent NextWave opinion, In re Federal Communication Commission, where the court granted mandamus to allow the re-auction of the disputed C-block licenses over the objection of NextWave and the bankruptcy court. The NextWave opinions appear to underline the trend of the courts to de-emphasize the pre-eminence of the bankruptcy laws and attempt to harmonize the Bankruptcy Code with other state and federal law. While the Supreme Court ultimately will decide whether the 2nd Circuit in NextWave swung the pendulum too far, it appears that bankruptcy practitioners increasingly will need to consider the impact of “other” law on their cases and be careful not to assume that the Bankruptcy Code will prevail in all situations where conflicts might exist. In light of the continued complexity of business reorganization cases concerning the telecommunications industry and issues concerning intellectual property that permeate the high-tech industry, it is doubtful that bankruptcy practitioners will be able to feel safe with knowledge of only the bankruptcy common law and the Bankruptcy Code. A highly specialized knowledge of bankruptcy law increasingly must be supplemented with specialized knowledge of state and other federal laws that will significantly impact the outcome of bankruptcy cases.

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