WASHINGTON-Two U.S. Supreme Court justices seem to hold the fate of bankrupt NextWave Telecom in the palms of their hands.
If NextWave is to prevail, Justice Antonin Scalia needs to convince his colleagues that the Federal Communications Commission’s (FCC) use of the word “automatic” runs foul of the Bankruptcy Code.
If the FCC is to win this years-long litigation, Justice Stephen Breyer needs to persuade his fellow justices that the FCC needs to have the regulatory authority to allocate spectrum licenses and that that authority cannot be overruled by the Bankruptcy Code.
While it is always hard to judge the outcome of a court case based on oral argument, it did appear by the questioning that Justices Scalia and Breyer have already staked out their positions.
Scalia was not buying the FCC’s regulatory purpose argument. “You can always find a regulatory purpose. It is the easiest thing in the world,” he said.
The FCC’s regulatory purpose for canceling the licenses for non-payment was secondary to the fact that the licenses canceled because of non-payment, said Scalia. In a hypothetical example, Scalia said if someone murdered someone because they were Jewish but later said it was not because of race but rather because the killer was upset at the policies of Israel, that did not change the fact that the person was killed because he was Jewish.
“That doesn’t alter the fact that the person was killed because he was Jewish and that the license was canceled for non-payment,” said Scalia.
Breyer said that there are always exceptions implicit in law that can be derived from legislative history and that it seemed to him that the regulatory exception applied in this case. He did seem to acknowledge that other members of the court do not agree with using legislative histories in deciding cases so he might have a hard time winning his argument.
Justice Anthony Kennedy said the problem dated back to the FCC’s decision to use market forces to allocate spectrum. “Isn’t bankruptcy part of the market?” he asked.
Paul Clement, acting solicitor general who argued the case on behalf of the FCC, said the situation was different because the FCC had discretion, through its regulatory powers, to alter the automatic cancellation provisions.
This brought Chief Justice William Rehnquist into the debate. “Automatic means without discretion.”
Justice Sandra Day O’Connor said the FCC’s actions in going along with the bankruptcy proceedings meant it did not initially enforce the automatic cancellation.
The automatic question was also placed in front of Jonathan Franklin, who argued on behalf of Arctic Slope Regional.
“Why doesn’t automatic mean automatic? Your brother (referring to Clement) just explained that automatic [has some exceptions]. Automatic except when it isn’t,” said Justice David Souter.
Scalia didn’t let NextWave’s counsel, Donald Verrilli, off the hook. Scalia said that if the FCC were to change its rules to say it “may” cancel their licenses, then it would not run into the bankruptcy conflict.
Verilli seemed to agree when he said the Bankruptcy Code forbids cancellation “solely because of non-payment.”
Laurence Tribe, counsel for NextWave’s creditors, said that as a creditor the FCC needed to wait in line for its piece of the NextWave pie, not try to take all of the assets or licenses. “It is not permissible for an agency that holds a lifeline to pull the plug,” Tribe told reporters after the argument.
Both Verilli and Tribe seemed pleased with the argument. Verilli said he was not discouraged by Breyer’s position.
Franklin said in both the argument and after to reporters that Arctic Slope-an investor in Alaska Native Wireless, a major winner in the re-auction of NextWave’s licenses-believed NextWave had gamed the system by entering bankruptcy.
Clement did not take reporters’ questions.
Alan Salmasi, chief executive officer (CEO) of NextWave, said that if the Supreme Court did not rule in its favor that it would have a fiduciary responsibility to continue the litigation at the U.S. Court of Appeals for the District of Columbia Circuit.
