The Supreme Court dials 1-800-Bankruptcy.

In a case emblematic of all that was best about the '90s, the Supreme Court heard argument today in Federal Communications Commission v. NextWave Personal Communications. The dispute centers around a uniquely '90s kind of bankruptcy: The bankrupt party wants to keep $5 billion worth of wireless phone spectrum licenses without paying for them, and the government wants to resell those same licenses for $16 billion without actually owning them. I miss those '90s. I do.

The facts will only hurt for a minute: In 1996, NextWave was the highest bidder when the FCC auctioned off some scarce and valuable wireless spectrum licenses. It bid $4.74 billion, paying 5 percent down, 5 percent the next year, and agreed to pay the balance over the next 10 years. Shortly thereafter, when the market tanked and NextWave couldn't pay, it petitioned the FCC to restructure its repayment plan. When the parties couldn't agree on a new schedule, the company declared bankruptcy. NextWave evidently never made another payment and never provided service to a single customer, although they still own licenses for crowded metropolitan areas including Los Angeles, New York, Seattle, Boston, and Washington, D.C.

After a good deal of legal wrangling, NextWave got the bankruptcy court to rule that its $5 billion licenses were really worth only $1 billion at the time of auction and that there had been a fraudulent conveyance on the part of the FCC. The 2^nd Circuit Court of Appeals reversed that decision. NextWave offered in 1999 to pay the FCC the balance owed, but—with market conditions improving—the FCC elected to re-auction the same licenses. Of course, there was still a dispute pending in the courts as to whether the licenses were still the FCC's to sell. But that didn't prevent the FCC from selling the licenses to a group of wireless carriers for a whopping $15.9 billion. In June 2001, the Circuit Court of Appeals for the District of Columbia found that the FCC had improperly revoked the licenses and resold them.

Reviewing: NextWave owns a bunch of licenses it hasn't paid for and, since it couldn't sell the Brooklyn Bridge, the FCC resold these licenses but never actually turned them over. I count billions of dollars in welching here. The Supreme Court granted certiorari to resolve a narrow legal question: Did the FCC, in revoking NextWave's licenses, violate Section 525 of the Bankruptcy Code, prohibiting government agencies from "revoking, suspending or refus[ing] to renew a license" solely because the debtor is or has been in bankruptcy?

Acting Solicitor General Paul Clement argues first for the FCC. (The real SG, Ted Olson, cannot, because he represented NextWave in the lower courts.) Clement says the bankruptcy rule forbidding the government from revoking licenses doesn't apply here because the FCC, in revoking NextWave's licenses for failure to pay, wasn't acting in its capacity as "creditor" but rather in its "regulatory" capacity. The FCC didn't revoke the licenses "solely" because NextWave failed to pay its "debts," but because the failure to pay was a "proxy" for a regulatory "determination of who was qualified to have a license." The licenses weren't revoked because NextWave welched, but because the "public interest" demanded it.

Justice David Souter interrupts him: "You say the public interest determined this, but wasn't it purely economic? When the value of the licenses dropped, you wanted full payment, when the value went up, you wanted to re-auction. In each case you made an economic, not a regulatory decision."

Justice Antonin Scalia adds: "Can't you always find a regulatory purpose? That's the easiest thing in the world."

Justice Ruth Bader Ginsburg points out that there's a tension between the FCC's position that licenses are "automatically canceled" upon a failure to pay, and Clement's insistence that revocation was not automatic but up to the discretion of the agency. "There is some tension there," admits Clement. He adds that revocation is only automatic once the agency's efforts to collect have failed. That is, there's some discretionary automatic-ness at work here. Justice John Paul Stevens suggests that if it's still discretionary, why doesn't the FCC just settle the case today? "They say they are able to pay. ..."

Um, well, there is that little matter of the FCC's subsequent resale of the licenses to someone else. ...

Justice Scalia asks whether the real issue in this case isn't whether the FCC ever has the discretion to cancel. "That may be more important than a few billion dollars here."