No.

07-803 I007

OFFIC~ OF: T~E C)LE~K

IN TIlE

DONALD A. THACKER, TRUSTEE,

Vo

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION AND UNITEDSTATES OF AMERICA,

Respon den

Petition for a Writ of Certiorarito the United States Court of Appeals

for the Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

John S. RiperJoseph M. CamposJesse D. MillerSTANISLAW ASHBAUGH, LLP

701 Fifth AvenueSuite 4400Seattle, WA 98104-7012(206) 386-5900

Donald B. Verrilli, Jr.William M. Hohengarten

Counsel of RecordDuane C. PozzaMatthew S. HellmanJENNER ~ BLOCK LLP

601 Thirteenth Street, NWSuite 1200 SouthWashington, DC 20005(202) 639-6000

Counsel for Petitioner

iQUESTION PRESENTED

This case arises from the same FCC auction andcredit program addressed by this Court and the D.C.Circuit in NextWave PorBonal CommunicationB Inc.v. FCC, 254 F.3d 130, 151 (D.C. Cir. 2001), a£t’d, 537U.S. 293 (2003). Acting as a secured creditor, theFCC financed the purchase of exclusive licenses bypetitioner Magnacom, took security interests in thelicenses as collateral to protect itself as creditor, thendisposed of its collateral by canceling the licensesand reselling the same rights to others whenMagnacom could not repay its loan. The questionpresented is:

Whether the Ninth Circuit erred in ruling -contrary to NextWsye- that the FCC’s roles asregulator and creditor are mutually exclusive andthat use of its regulatory power to cancel licenseswas not an act to enforce its security interest,thereby permitting the FCC to circumventMagnacom’s unwaivable right to receive the surplusproceeds from the license reauction under thecreditor’debtor law that binds federal agencies?

iiPARTIES TO THE PROCEEDING AND

CORPORATE DISCLOSURE STATEMENT

Petitioner is Donald A. Thacker, in his capacity asTrustee of the bankruptcy estate of MagnacomWireless, LLC. Magnacom Wireless, LLC is ownedby two privately held companies, The WhaleboneGroup, LLC, and Pacwest Networks, Inc., neither ofwhich issues shares to the public.

Respondents are the Federal CommunicationsCommission and the United States of America.

.oo111

TABLE OF CONTENTS

QUESTION PRESENTED ..........................................i

PARTIES TO THE PROCEEDING AND ..................ii

CORPORATE DISCLOSURE STATEMENT ...........ii

TABLE OF AUTHORITIES ........................................v

OPINIONS BELOW ....................................................1

JURISDICTION ..........................................................1

STATUTES INVOLVED .............................................1

STATEMENT OF THE CASE ....................................1Factual Background ...............................................4

Proceedings Below ...............................................11

REASONS FOR GRANTING THE WRIT ................17

I. The Ninth Circuit’s Decision Is in DirectConflict with the D.C. Circuit’s Ruling inNext Wave .............................................................19

II. The Ninth Circuit’s Rigid Dichotomy Betweenthe FCC’s Roles as Regulator and Creditor IsContrary to this Court’s NextWave Decision ......25

III.The Ninth Circuit’s Decision Is Contrary toKimbe]] Foods and Other Decisions HoldingThat Federal Agencies Are Bound by the SameRules That Apply to other Creditors ...................30

CONCLUSION ..........................................................34

Appendix AIn re Magnacom Wireless, LLC, 503 F.3d 584 (9th

Cir 2007) ......................................................... la

iv

Appendix BIn re Magnacom Wireless, LLC, Memorandum

Decision, No. 98-39048 (Bankr. W.D. Wash.Oct. 5, 2004) ..................................................24a

Appendix CT.backer v..FCC, Order Affirming Bankruptcy

Memorandum Decision, No. C04-5681FDB(W.D. Wash. June 22, 2005) .........................45a

Appendix DIn re Magnacom Wireless, LLC, Memorandum

Decision, No. 98-39048 (Bankr. W.D. Wash.Sept. 2, 2003) ................................................58a

Appendix EStatutes and Regulations Involved ...................69a

Appendix FSecurity Agreement (Broadband Personal

Communications Service, C Block: AuctionEvent No. 5, 10) ............................................79a

V

TABLE OF AUTHORITIES

CASESChicago Title Insurance Co. v. Sherred Village

Associates, 708 F.2d 804 (lst Cir. 1983) ........31

Christensen v. Harris County, 529 U.S. 576(2000) ...............................................................28

FCC v. NextWave Personal CommunicationsInc., 537 U.S. 293 (2003) ........................ passim

Gordon v. Kreul, 77 F.3d 1fi2 (7th Cir. 1996) .....34

dean Alexander Cosmetics, Inc. v. L’OrealUSA, Inc., 458 F.3d 244 (3d Cir. 2006), cert.denied, 127 S. Ct. 1878 (2007) ........................24

In re Kennedy, 785 F.2d 1553 (11th Cir. 1986).. 31

In re NextWave Personal CommunicationsInc., 244 B.R. 253 (Bankr. S.D.N.Y. 2000),vacated sub nora. In re FCC, 217 F.3d 125(2d Cir. 2000) .................................................. 33

NextWave Personal Communications Inc. v.FCC, 254 F.3d 130 (D.C. Cir. 2001), aft’d,537 U.S. 293 (2003) ................................. passim

O’Melveny & Myers v. FDIC, 512 U.S. 79(1994) ...............................................................30

Sierra Club v. Whitman, 285 F.3d 63 (D.C.Cir. 2002) ........................................................24

United States v. Currltuck Grain, Inc., 6 F.3d200 (4th Cir. 1993) ..........................................31

United States v. KJmbell Foods, Inc., 440 U.S.715 (1979) ...................................... 12, 18, 30, 31

viUnited States v. Mead Corp., 533 U.S. 218

(2001) ...............................................................28

United States v. Progressive FarmersMarketingAgeney, 788 F.2d 1327 (8th Cir.1986) ................................................................31

United States v. Tugwell, 779 F.2d 5 (4th Cir.1985) ................................................................31

United States v. Walter Dunlap & Sons, Inc.,800 F.2d 1232 (3d Cir. 1986) ..........................31

STATUTES AND REGULATIONS

11 U.S.C.

11 U.S.C.

11 U.S.C.

11 U.S.C.

11 U.S.C.

II U.S.C.

11 U.S.C.

11 U.S.C.

11 U.S.C.

28 U.S.C.

28 U.S.C.

28 U.S.C.

47 C.F.R.

47 U.S.C.

47 U.S.C.

§ 101(37) ..............................................20

§ 101(51) ..............................................20

§ 106(b) ................................................11

§ 362 .......................................................7

§ 362(a)(4) ............................................20

§ 362(b)(4) ............................................20

§ 362(d)(1) ..............................................8

§ 362(d)(2) ..............................................8

§ 525(a) ..........................................19, 20

§ 157 .....................................................11

§ 1254(1) ................................................1

§ 1334 ...................................................11

§ 24.709(a)(1) (1997) ..............................4

§ 309(j)(1) ...............................................4

§ 309(j)(3)(B) ..........................................4

vii47 U.S.C. § 309g)(4)(A) ..........................................4

47 C.F.R. § 1.2110(g)(4)(iv) ......................1, 5, 7, 19

47 C.F.R. § 1.2110(g)(3) .........................................4

U.C.C. § 9-602(5) (Wash. Rev. Code 62A.9A-602) ..................................................................12

U.C.C. § 9-610(a) (Wash. Rev. Code 62A.9A-610(a)) .............................................................12

U.C.C. § 9-615(d)(1) (Wash. Rev. Code 62A.9A-615(d)(1)) .........................................................12

ADMINISTRATIVE RULINGS

Separate Statement of Chairman Reed E.Hundt, In re Amendment of theCommunications Rules RegardingInstallment Payment Finance for PersonalCommunications Services (PCS) Licensees,12 F.C.C.R. 16,436 (1997) .................................7

C and F Block Broadband PCS SpectrumAuction Scheduled for December 12, 2000,15 F.C.C.R. 19,485 (2000) ...............................10

In re Disposition of Down Payment & PendingApplications by Certain Winning Biddersin Auction No. 35, 17 F.C.C.R. 23,354(2002) ...............................................................10

Leonard J. Kennedy, Esq., 11 F.C.C.R. 21572(1996) ...............................................................28

OPINIONS BELOW

The Ninth Circuit’s opinion is reported at 503F.3d 584 and is reprinted at Pet. App. la-23a. Theorder of the District Court is unreported and isreprinted at Pet. App. 45a-57a. The order of theBankruptcy Court is unreported and is reprinted atPet. App. 24a-44a.

JURISDICTION

The Ninth Circuit’s decision and judgment werefiled on September 17, 2007. This petition is timelyfiled on December 14, 2007. The jurisdiction of thisCourt is invoked under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

This case involves the interaction of federalstatutes (the Bankruptcy Code and CommunicationsAct), an FCC regulation (47 C.F.R. § 1.2110(g)(4)(iv)),and Article 9 of the Uniform Commercial Code,which applies here as federal common law becausethe FCC assumed the role of secured creditor. Therelevant provisions are set out in the appendix atPet. App. 69a.

STATEMENT OF THE CASE

This case arises from the same FCC program andauctions considered by this Court and the D.C.Circuit in NextWave Personal Communications Inc.v. FCC, 254 F.3d 130, 151 (D.C. Cir. 2001), afrd, 537U.S. 293 (2003) -but with startlingly differentresults. Under this FCC program, the agency wears"two hats - that of regulator and creditor." Pet. App.

239a. The issue is whether the FCC may use itsstatus as regulator to circumvent its obligations ascreditor under long-established federal law. In starktension with Next Wave, the Ninth Circuit allowedjust that. The Ninth Circuit reasoned that when theFCC acts as a creditor in the market it regulates andthen uses its regulatory authority to repossesscollateral for failure to debt, it can effectively bypassthe obligations that otherwise attach to every federalagency under settled federal debtor-creditor law.The Ninth Circuit thus held that the FCC’sregulatory power is entirely "separate andindependent" from its creditor status and exempts itfrom the obligations of a secured creditor. Pet. App.19a.

The Ninth Circuit’s either/or logic - the FCC actseither as a regulator or as a creditor, notsimultaneously as both - is contrary to NextWaveand to settled federal law governing federal agenciesthat choose to act as creditors in the market. It is indirect conflict with the D.C. Circuit’s specific holdingin NextW~ve that when the FCC cancels licenses inresponse to nonpayment under the very regulation atissue here, the cancellation is both a regulatory actand enforcement of the agency’s security interest.Indeed, the Ninth Circuit went out of its way todisparage Judge Tatel’s opinion on this point as notbeing the D.C. Circuit’s "reasoned conclusion." Pet.App. 16a. In addition, the Ninth Circuit’s reasoningis contrary to this Court’s NextWave decision, whichaffirmed the D.C. Circuit and likewise rejected theeither/or approach, because "a debt is a debt, evenwhen the obligation to pay it is also a regulatory

3condition." FCC v. NextWave Personal Commc’ns,537 U.S. 293, 303 (2003). Finally, the Ninth Circuit’sreasoning upends well-established federal lawholding that all federal agencies are subject to theuniform and predictable debtor-creditor law thatapplies to other market actors - and upon whichprivate actors justifiably rely in structuring theirtransactions in the market that the agency regulates.

As the FCC itself urged when it sought andobtained this Court’s review in NextWave, theorderly administration of hybrid regulatory andcredit programs like that here requires legalcertainty - for private parties who rely on settledcommercial law when they make their investmentsas well as for the agency. Every federal agency thatextends credit subject to security interests does so infurtherance of a broader regulatory agenda. But theNinth Circuit’s decision lets a federal agency switchback and forth between "separate and independent"regulatory and creditor roles according to itsimmediate pecuniary advantage, therebyundermining the certainty that is otherwise providedby commercial law. The FCC’s actions here provide astark example of such gamesmanship to the agency’sadvantage - and to the detriment of a debtor’sinvestors and other creditors. Given the direct splitwith the D.C. Circuit’s decision in NextWave, andthe palpable tension with this Court’s decision inNextWave and with other cases requiring federalagencies to comply with uniform debtor-creditor law,the Ninth Circuit’s opinion calls for review by thisCourt.

4Factual Background

1. The FCC credit and auction program at issuehere is described at length in the D.C. Circuit’s andthis Court’s NextWave opinions. Briefly, in § 309(j)of the Communications Act, Congress directed theFCC to use auctions ("competitive bidding") to assignnew radio spectrum licenses. 47 U.S.C. § 309(j)(1).Congress also directed the FCC to design its auctionmechanisms to "disseminat[e] licenses among a widevariety of applicants, including small businesses," id.§ 309(j)(3)(B), and to "consider alternative paymentschedules and methods of calculation, including lumpsums or guaranteed installment payment ... orother schedules or methods," id. § 309(j)(4)(A).

The FCC chose to implement these broadstatutory directives by limiting auctions for somelicenses to small or entrepreneurial businesses("designated entities") and to allow such businessesto pay for their licenses through installmentpayments. 47 C.F.R. § 24.709(a)(1) (1997). The FCCthereby chose to become a creditor financing thepurchase of licenses by the small businesses it wassupposed to aid.

Consistent with its creditor position, the FCCrequired winning bidders who used installmentpayments to execute security agreements grantingthe FCC "a first lien on and continuing securityinterest in all of the Debtor’s rights and interest inthe License[s] and all proceeds, profits and productsof any sale of or other disposition thereof(collectively, the ’Collateral’)." Pet. App. 80a; see 47C.F.R. § 1.2110(g)(3).

5The FCC’s security agreement defines a debtor-

licensee’s failure to pay its debt to the FCC as anevent of default under the security agreement andspecifies several remedies the FCC has for suchdefault under the agreement. Pet. App. 87a-88a.First among these FCC remedies under the securityagreement is that the debtor’s "License shall beautomatically canceled pursuant to47 C.F.R.§ 1.2110." Pet. App. 88a; see47 C.F.R.§ 1.2110(g)(4)(iv) (providing that when adebtor-licensee does not make timely paymentson itsinstallment notes, "it shall be in default, itslicenseshall automatically cancel, and it will be subject todebt collection procedures"). The security agreementalso purports to waive the debtor-licensee’s right toproceeds from the resale of its license rights in theevent the FCC exercises its right under the securityagreement to proceed against its collateral - thelicenses - by cancelling them. Pet. App. 88a-89a.

As this Court explained in NextWave, the FCC’sdecisions to finance licenses through installmentpayment plans and - more importantly - to cancellicenses in the event of repayment default are notchoices dictated by Congress, but represent mere"policy preferences on the FCC’s part." 537 U.S. at304. "[N]othing in [§309(j)] demands thatcancellation be the sanction for failure to makeagreed-upon periodic payments. Indeed, nothing inthose provisions even requires the Commission topermit payment to be made over time, rather thanleaving it to impecunious bidders to finance the fullpurchase price with private lenders."

6In short, the FCC chose to carry out its regulatory

mission by assuming the role of a secured creditor,financing the purchase of licenses, requiring securityagreements as protection for its position as creditor,and making regulatory cancellation of the licenses aremedy for enforcing those security interests in theevent the debtor-licensee defaulted on its loan.

2. In the late 1990s, the FCC sold 18 licenses forexclusive use of specific radio spectrum for personalcommunications services to Magnacom Wireless,LLC, a designated entity eligible for securedfinancing from the FCC. Magnacom was awardedthese licenses in the exact same C- and F-Blockauctions that were at issue in NextWave. See 537U.S. at 296; Pet App. 3a. Each of the licenses gaveMagnacom the exclusive right to use a uniquesegment of the radio spectrum in a specificgeographic area. As long as Magnacom held itslicenses, the FCC could not license any othercompany to use those airwaves in those localities.

To purchase its licenses, Magnacom made downpayments of about $7 million and executed the FCC"required installment plan notes and securityagreements for the rest of the purchase price,approximately $48 million. A representative securityagreement is included at Pet. App. 79a-94a.

After Magnacom bought its licenses, made itsdown payments, and executed the secured loandocuments required by the FCC - but before its firstinstallment payment was due - the bottom fell out ofthe spectrum market. Virtually every C-Block andF-Block debtor-licensee, including both NextWave

7and Magnacom, was forced into bankruptcy ordefaulted on its loans when it could not raise themoney needed to repay the FCC. Like NextWave,Magnacom filed for Chapter 11 bankruptcyprotection just before going into default on its FCCinstallment payments.1

3. After Magnacom was forced into bankruptcy,the FCC filed a motion in the bankruptcy court foran order lifting the automatic stay, zee 11 U.S.C.§ 362, so that the FCC could cancel Magnacom’slicenses under its rule providing for automaticcancellation of licenses when the debtor-licenseedefaults on its installment payments, 47 C.F.R.§ 1.2110(g)(4)(iv). As previously noted, cancellationunder that very rule is the FCC’s primary remedy asa secured creditor for default under the securityagreement and installment notes. Supra at 5; Pet.App. 87a-88a.

As a result of the market downturn, Magnacomwas left without equity in its licenses when it filedfor bankruptcy, i.e., its secured debt to the FCCexceeded the licenses’ current value.2 Magnacom

The FCC’s own Chairman chastised the agency forfailing to reasonably accommodate debtor-licensees likeMagaacom during this temporary market downturn, therebycreating "a substantial risk of bankruptcies that Congress andany commercially reasonable enterprise would have useliminate." Separate Statement of Chairman Reed E. Hundt,In re Amendment of the Comm’n’s Rule~ Regarding InstallmentPayment Fin. for Per~. Comme’ns ~ervs. (PCS) Licensees, 12F.C.C.R. 16,436 (1997).

The same was true at the initial stages of NextWave’sbankruptcy. At that time, NextWave’s licenses were worth less

8therefore consented to an order lifting the automaticstay under Bankruptcy Code provisions that allowundersecured creditors like the FCC to enforce theirsecurity interests. See 11 U.S.C. § 362(d)(1), (2).Magnacom also consented to specific languageproposed by the FCC that expressly allowed theagency to exercise its right to enforce its intereststhrough cancellation of the licenses.

Magnacom’s consent was predicated on the FCC’srepresentation that lifting the stay to allow it toproceed by cancellation would be "economicallyneutral for the government fisc and certainly confersno economic advantage to the government over thirdparties in relation to the Debtor’s estate." E.R. 102.3The bankruptcy court therefore entered the FCC’sproposed lift-stay order, specifically citing the court’sauthority to lift the stay under § 362(d)(1), (2) -provisions that allow undersecured creditors toenforce their security interests. E.R. 78. The orderlifted the automatic stay to allow "the FCC [to]pursue immediately any and all of its remedies,including its right to cancel the Defaulted Licenses ifsuch licenses have not already canceled as a matterof law." Pet. App. 6a, 59a.4

than one-fourth what NextWave owed the FCC for them. See537 U.S. at 298.

"E.R" denotes Appellants’ Excerpts of Record filed in theNinth Circuit below.

Two months later, Magnacom’s bankruptcy wasconverted from a Chapter 11 reorganization to a Chapter 7liquidation.

94. After the stay was lifted and the FCC

exercised its remedy of automatically cancelingMagnacom’s licenses - but before it disposed of thoselicense rights in a subsequent auction - the FCCfiled a proof of claim in Magnacom’s bankruptcy forthe entire $48 million Magnacom owed for thelicenses. As the FCC subsequently explained, it filedthis proof of claim to protect its right to recover "anyde_t’ieie~e.y amount between the amount owed byMagnacom and the amounts bid at a subsequentauction" for the license rights. FCC Br. (9th Cir.) at10 n.5 (emphasis added). In other words, the FCCacted like any other secured creditor in asserting adeficiency claim for the shortfall in the value of itscollateral compared to the amount of the debt itsecured. The bankruptcy court allowed the FCC’sclaim. Pet. App. 6a, 60a.

The FCC then waited out the market downturn inlicense values before reauctioning the exclusivespectrum rights it had taken back from Magnacom.Once spectrum values rebounded, the FCC resoldMagnacom’s former license rights in the very sameauction, subject to the same terms, in which itreauctioned NextWave’s licenses, which it had alsopreviously cancelled. Not surprisingly, then, theFCC received the same windfall from canceling andreselling Magnacom’s licenses as it initially obtainedfrom NextWave’s - an enormous increase in valuesnot only above the extremely depressed marketprices that had forced Magnacom and NextWave intobankruptcy, but even far above the values thatprevailed before the market downturn, whenMagnacom and NextWave originally invested in the

10licenses.5 In Magnacom’s case, although it owed theFCC only $48 million for the licenses (on top of the$7 million in down payments it had already made),the FCC reauctioned the exclusive rights to use thesame spectrum for $287 million. Pet. App. 7a.

5. In light of the reauction, the Trustee ofMagnacom’s bankruptcy estate and certain creditorsmoved in the bankruptcy court for reconsiderationand disallowance of the FCC’s $48 million deficiencyclaim, on the ground that Magnacom’s debt to theFCC had been fully satisfied by the proceeds fromthe reauctioned licenses. The FCC vigorouslyopposed disallowance of its claim. Pet. App. 60a. Itargued that Magnacom had no interest in theproceeds from the reauction, because cancellationhad eliminated any interest it had in the spectrumrights and the FCC had auctioned entirely newlicenses unrelated to Magnacom’s. Pet. App. 64a.

5 Because NextWave contested the cancellation of itslicenses, the FCC reauctioned those license rights subject toNextWave’s prior rights if its lawsuit succeeded. See C ~nd FBlock Broadband PCS Spectrum Auction Scheduled £orDecember 12, 2000, 15 F.C.C.R. 19,485, 19,493 (2000). WhenNextWave prevailed, the FCC had to cancel the award of thelicenses to the winning bidders in the reauction of NextWave’slicenses in order to restore them to NextWave. See In reDisposition of Down P~yment & Pending Applications byCertain Winning l~idders in Auction No. 35, 17 F.C.C.R. 23,354,23,359-62 (2002). As this sequence of events shows, the FCCcould dispose of these exclusive rights only by repossessingthem from the original licensee through cancellation or someother means. And when the licenses were restored toNextWave, it (rather than the FCC) benefited from the license’sappreciation in value above the amount of NextWave’s debt tothe agency.

11The bankruptcy court rejected the FCC’s

arguments. "The Court is unconvinced by the FCC’sargument that the claim may not be reconsideredbecause the licenses that it subsequently auctionedwere different licenses than the ones previously heldby the Debtor .... No matter how labeled, ... theFCC could not have auctioned these licenses to newusers, but £or the Debtor’s default." Pet. App. 64a.Accordingly, "the FCC’s claim against the Debtor’sestate" was "satisfied" by the reauction proceeds. Id.Continuing to allow the claim would improperlypermit the agency "to collect from the debtor twice."Id. 65a. The court therefore disallowed the FCC’sclaim. Id. 67a-68a. The FCC did not appeal thatruling.

Proceedings Below

The Trustee, acting on behalf of the bankruptcyestate, then commenced this adversary proceedingagainst the FCC to recover the ~t~rplus proceeds fromthe license reauction, of which $239 million remainedafter $48 million was used to pay off Magnacom’sdebt to the FCC. The bankruptcy court’s jurisdictionarose under 28 U.S.C. §§ 157 and 1334.6

Sovereign immunity does not bar the Trustee’sadversary claim. Congress has waived the United States’sovereign immunity where - as here - the Government itselffiles a proof of claim in a bankruptcy case and the claimasserted against the Government belongs to the bankruptcyestate and arises out of "the same transaction or occurrence" asthe United States’ own claim. 11 U.S.C. § 106(b). Accordingly,the FCC has never asserted a sovereign immunity defense tothe Trustee’s adversary proceeding. Indeed, the Government

12The Trustee’s primary claim (the one at issue

here) is that under well-established law that appliesto federal agencies when they assume the role of asecured creditor, Magnacom has an unwaivable rightto the surplus proceeds that resulted when the FCCdisposed of its collateral - the licenses - by cancelingthem and reselling the same exclusive rights toothers solely because Magnacom was forced todefault on its debt. Under United States v. Kimboll.Foods, Inv., 440 U.S. 715 (1979), when a federalagency assumes the role of "a voluntary commerciallender," "federal law" governs the relationshipbetween the government and the private debtor. Id.at 722, 726.7 But in the absence of any statute orextraordinary circumstances requiring another rule,federal law must "adopt state law," id. at 728-29 -particularly where, as with secured transactions, theU.C.C. provides a uniform body of law adopted bynationwide, id. at 732 n.28. U.C.C. Article 9therefore applies here as federal law. And Article 9mandates that whenever, "[a]fter default, a securedparty [chooses to] sell, lease, license, or otherwisedispose of any or all of the collateral," "the securedparty sha]] account to and pay a debtor for anysurplus." U.C.C. §§ 9-610(a), 9-615(d)(1) (Wash. Rev.Code 62A.9A-610(a), -615(d)(1)). Article 9 alsoprovides that the debtor’s right to the surplusproceeds cannot be waived. U.C.C. § 9-602(5) (Wash.Rev. Code § 62A.9A-602). These provisions are

has consistently sought and obtained rulings on the merits ofthe Trustee’s claim.

The security agreements here also provide that they aregoverned by "federal law." Pet. App. 92a.

13intended to protect debtors in the very circumstanceshere - where a secured creditor takes advantage of atemporary market downturn, seizes collateral from adistressed debtor who cannot make payments, waitsout the depressed market, and then sells thecollateral after the market recovers for a windfallabove the amount of the debt that was secured by thecollateral.

The Trustee also asserted a separate claimdirectly under the Bankruptcy Code, on the theorythat the licenses and their proceeds represent"property of the bankruptcy estate." Pet. App. 13a.Finally, the Trustee argued that although thebankruptcy court’s earlier order disallowing theFCC’s proof of claim had not decided the Trustee’sclaim for the surplus, it had decided the issue ofwhether the reauction proceeds were traceable toMagnacom’s licenses - "the FCC could not haveauctioned these licenses to new users, but for theDebtor’s default", Pet. App. 64a - so that issuepreclusion barred the FCC from relitigating thatspecific issue.

The FCC moved to dismiss the Trustee’scomplaint. In ruling on the motion, the bankruptcycourt recognized that under the agency’s auction andloan program, "the FCC is wearing two hats - that ofregulator and creditor." Pet. App. 39a. The courtalso recognized that "nothing in the FederalCommunications Act (FCA) or FCC regulationsgoverns this issue [of entitlement to the surplusproceeds], allowing this Court to look to the UCC forguidance in determining federal common law," andthat "despite the express waiver contained in

14paragraph 8(d) of the Security Agreements, theDebtor possesses an unwaivable interest in theproceeds under the UCC." Pet. App. 38a. Therefore,if the FCC was acting as a secured creditor (as wellas a regulator) when canceling the licenses solelybecause Magnacom could not pay its debts, theTrustee would have a valid claim to the surplus.

Nonetheless, the bankruptcy court granted theFCC’s motion to dismiss, on the ground that the FCCchose to act as a regulator rather than a creditor inresponse to Magnacom’s default on its debt:

When the Debtor filed [for] bankruptcy anddefaulted on its payment obligations to theFCC, the FCC had two options available. Itcould either act as a secured creditor and seekto enforce its security interest (in which casethe UCC would likely apply and the Debtorwould retain an interest in the proceeds), oract as regulator and cancel the licenses. TheFCC chose the second option.

Pet. App. 40a. In other words, the FCC could pickand choose whether to wear its regulator or creditor"hat" according to its immediate interest at anygiven time. By choosing to act as a regulator in thisinstance, it circumvented its obligation as creditor toaccount to the debtor for surplus proceeds.8 Thedistrict court affirmed. Pet. App. 57a.

s The bankruptcy court also ruled that its order

disallowing the FCC’s proof of claim was without issuepreclusive effect, because the court’s earlier order reservedjudgment on the Trustee’s clsim to the surplus. Pet. App. 31a-

15On further appeal, the Ninth Circuit also

affirmed. It first rejected the claim asserted by theTrustee under the Bankruptcy Code. The court ofappeals reasoned that under the CommunicationsAct, the FCC’s cancellation of Magnacom’s licensesterminated Magnacom’s interest in the licenses andthe underlying spectrum, and that therefore "theproceeds from the auction of the new licenses werenot property of the bankruptcy estate." Pet. App. 8a;see a]so id. at 13a-14a.

The Ninth Circuit then turned to the Trustee’sclaim under federal common law incorporating theU.C.C. and rejected that claim under the samerationale as the bankruptcy court. The courtassumed arguendo that the U.C.C. governs theFCC’s security agreements, and observed that "theUCC would support the trustee’s claim ofentitlement to proceeds from the FCC’s sale of newlicenses only if the FCC’s cancellation of[Magnacom’s] licenses was a lien-enforcementremedy under the UCC." Pet. App. 15a. Like thebankruptcy court, however, the Ninth Circuit heldthat the FCC was free to choose whether to act as acreditor or instead purely as a regulator whencanceling Magnacom’s licenses in response toMagnacom’s default on its debt:

The FCC had a regulatory and contractualright to cancel Magnacom’s licenses. Thisright was separate and independent from theFCC’s rights as a secured creditor. Nothing in

32a. That preclusion ruling was affirmed by the district courtand the Ninth Circuit. [d. 51a-52a, 22a-23a.

16the Security Agreement or the applicableregulations indicates that a licensecancellation must be viewed as a lien-enforcement remedy, and we decline to do so.Because tJbe FCC’~ ]icense cance]Iation is not aUCC lien-enforcement remedy, the UCC’~requirements are simply inapplicable.

Pet. App. 19a (emphasis added).

In support of this ruling, the Ninth Circuit firststated, inexplicably, that "the Security Agreementdoes not make cancellation a lien-enforcementremedy." Pet. App. 15a. In fact, the securityagreement defines an "Event of Default" as a "defaultunder this Agreement," and provides that "fill anEvent of Default shall occur, the Commission shallthereafter have the following rights andremedies... : the License[s] shall be automaticallycanceled pursuant to 47 C.F.R. § 1.2110." Pet. App.87a-88a. Thus, the security agreement does "makecancellation a lien-enforcement remedy." Thatshould not be surprising, given that the event thattriggers cancellation is default on the very debt thatis secured by the licenses as collateral.

The Ninth Circuit also rejected the D.C. Circuit’sruling in NextWave, 254 F.3d at 151, that regulatorycancellation under precisely these circumstances isalso simultaneously an act to enforce the FCC’s lienor security interest. The Ninth Circuit disparagedthe D.C. Circuit’s holding as a "statement0 made inpassing, without analysis," in response to a "highlytechnical argument," and said that it would "notconsider [NextWave’s] brief discussion to be the D.C.

17Circuit’s reasoned conclusion that cancellation of anFCC license is a lien-enforcement action." Pet. App.16a-17a. The Ninth Circuit also declined to followthe D.C. Circuit on this issue because the lattercourt’s opinion had been "superceded" by this Court’sNext Wave decision - which affirmed the D.C. Circuit- but "which did not address the question whetherlicense cancellation constituted lien enforcement."Id. 17a.

REASONS FOR GRANTING THE WRIT

The Ninth Circuit allowed the FCC to use itsregulatory authority to circumvent obligations thatotherwise attach under federal law when an agencyacts as a creditor. That ruling represents anacknowledged, specific, and outcome-determinativesplit with the D.C. Circuit’s decision in NextWave. Italso conflicts with this Court’s NextWaye decision,which rejected the dichotomy between regulatoryand creditor actions that has now been resurrectedby the Ninth Circuit here. Most fundamentally, theNinth Circuit’s ruling would free every federalagency that acts as a creditor from the constraints offederal creditor-debtor law whenever it invokes aregulatory motive or power for its creditor actions.For each of these reasons, the Ninth Circuit’s rulingshould be reviewed by this Court.

1. In NextWave, the D.C. Circuit specifically heldthat the FCC’s cancellation of licenses undercircumstances identical to those here is both aregulatory act and a creditor action to enforce theagency’s security interest. The Ninth Circuit heldjust the opposite - that the cancellation was a purely

18regulatory and not also a lien enforcement action.The Ninth Circuit acknowledged that circuit split,and it was outcome-determinative.

2. The Ninth Circuit ruling is also contrary tothis Court’s decision in NextWave that the FCCcannot exploit its regulatory status to evade creditor-protection laws. In NextWave the Court made clearthat the FCC’s roles as a regulator and creditor areinextricably intertwined in the program at issuehere. Thus, the Court rojeetedthe FCC’s contentionthat because it had regulatory motives and wasenforcing regulatory conditions, it had not canceledNextWave’s licenses solely because NextWave didnot pay its debts to the agency. The Court therebyrejected the FCC’s dichotomy between its regulatoryand creditor roles. But the Ninth Circuit acceptedthe FCC’s invitation to resurrect the regulator-creditor dichotomy here, ruling that these roles are"separate and independent" and that one and thesame act cannot be both the exercise of a regulatorypower and enforcement of creditor rights.

3. Most fundamentally, the Ninth Circuit’sruling allows the FCC or any other federal agency tofreely switch back and forth between distinct roles asregulator and market participant in pursuit of itsimmediate fiscal advantage. Agencies often act bothas regulators and as creditors in a singleadministrative program, but (absent specificdirectives from Congress to the contrary) they havealways been bound by federal debtor-creditor lawlike any other creditor under this Court’s precedentin United States v. Kimbell Foods, Inc., 440 U.S. 715(1979). That uniform application of commercial law

19provides the certainty that is necessary forstructuring everyday commercial relationships inregulated markets. But the Ninth Circuit nowallows any agency to exempt itself from theconstraints that apply to other creditors wheneverdoing so is in the agency’s immediate pecuniaryinterest, by the simple expedient of invoking"separate and independent" regulatory motives andpowers. The concern that an agency might try toexploit its dual roles is hardly speculative - in thiscase, as in NextWave, the FCC proceeded like anyother secured creditor until an upturn in the marketmade it more attractive to label its actions"regulatory." Although this Court refused to allowsuch conduct in Next Wave, the Ninth Circuitcondoned and even applauded it here.

I. The Ninth Circuit’s Decision Is in DirectConflict with the D.C. Circuit’s Ruling inNext We

In Judge Tatel’s carefully reasoned opinion inNextWave, the D.C. Circuit expressly held that theFCC’s automatic cancellation of licenses undercircumstances identical to those here is botts aregulatory act and simultaneously an action toenforce the FCC’s security interest in the licenses.254 F.3d at 151. The FCC canceled NextWave’slicenses under 47 C.F.R. §l.2110(g)(4)(iv) - the sameautomatic cancellation rule it invoked here - becauseNextWave (like Magnacom) could not make itsinstallment payments on the licenses after it wasforced into bankruptcy. 254 F.3d at 138, 149-50; seeal~o 537 U.S. at 298. NextWave challenged thecancellation under 11 U.S.C. § 525(a), which bars the

20Government from revoking licenses of a bankruptcydebtor solely because the debtor has not paid adischargeable debt. In response, the FCC and itssupporting intervenors vigorously argued that § 525should not be construed to reach the FCC’sregulatory cancellation, because that would conflictwith the Bankruptcy Code’s exemption of"regulatory" actions from the scope of the automaticstay, see 11 U.S.C. § 362(b)(4). The FCC contendedthat if the § 362 automatic stay permitted the FCC toexercise its regulatory power to cancel licenses fornonpayment, then § 525 could not be construed toprohibit the same thing. See 254 F.3d at 150.

The D.C. Circuit rejected that argument preciselybecause the FCC’s license cancellation was botl~ aregulatory act and an "act to create, perfect, orenforce any lien against property of the estate." 11U.S.C. § 362(a)(4); gee NextWsge, 254 F.3d at 151.In enacting § 362, Congress specifically provided thatalthough most regulatory acts are exempt from theautomatic stay, regulatory acts to enforce liens(including consensual security interests) are notexempt. 11 U.S.C. § 362(b)(4) (regulatory exceptionto stay does not extend to lien enforcement actionscovered by § 362(a)(4)).9 Thus, Congress (unlike theNinth Circuit) fully understood that there is nothingmutually exclusive about regulatory and creditoractions and that a government agency like the FCC

Under the Bankruptcy Code, the term "lien"encompasses consensual security interests like that here. 11U.S.C. § 101(37), (51).

21might use its regulatory power to enforce a securityinterest.

In NextWave the D.C. Circuit held that the FCChad done exactly that when exercising precisely thesame powers it exercised here: using its regulatorypowers to enforce its security interest. The courtobserved that "NextWave [like Magnacom] executedsecurity agreements giving the Commission a ’firstlien’ on the company’s interest in the licenses"; thatlien enforcement actions "include self-help remediesagainst collateral such as repossession"; and that"Commission counsel acknowledged that cancelingthe licenses and seeking to collect on the debt was’tantamount ... to foreclosing on collateral."’ 254F.3d at 151 (internal quotation marks omitted fromsecond quotation; ellipsis in original). "Thus,contrary to the Commission’s argument, andnotwithstanding the applicability of the regulatorypower exception, section 362’s automatic stay doe~apply here" - precisely because the regulatorycancellation was ~1~o an action to the enforce theFCC’s security interest. Id. Therefore, the statutoryconflict posited by the FCC did not exist. Id. ("Thisis thus not a case in which section 525, if applicable,would bar an action exempt from the automaticstay").

In short, the D.C. Circuit rejected the FCC’sautomatic stay argument based on an express rulingthat regulatory cancellation under thesecircumstances is ~1~o an action to enforce the FCC’ssecurity interest against the licenses as collateral.In the present case, however, the Ninth Circuitreached the exact opposite result, holding that

22cancellation under the same FCC rule, which istriggered by nonpayment of the licensee’s secureddebt, is a pure regulatory action and not also a lien-enforcement action. Pet. App. 19a ("The FCC had aregulatory ... right to cancel Magnacom’s licenses... separate and independent from the FCC’s rightsas a secured creditor .... Because the FCC’s licensecancellation is not a UCC lien-enforcement remedy,the UCC’s requirements are simply inapplicable").

That split in the Ninth and D.C. Circuit’sholdings is plainly outcome-determinative in thiscase. Had the Ninth Circuit followed the D.C.Circuit and held that cancellation was a lien-enforcement remedy, then the U.C.C. would haveapplied to the FCC’s actions, and Magnacom wouldhave an unwaivable right to the surplus proceeds ofthe collateral. As the bankruptcy courtacknowledged, if the FCC were found to be "act[ing]as a secured creditor and seek[ing] to enforce itssecurity interest," then "the UCC would likely applyand [Magnacom] would retain an interest in theproceeds." Pet. App. 40a. The Ninth Circuit tacitlyrecognized this as well. Id. 19a ("Because the FCC’slicense cancellation is not a UCC lien-enforcementremedy, the UCC’s requirements are simplyinapplicable"). Indeed, as this Court made clear inKi~be]l .Foods, the U.C.C. applies as federal lawbinding agencies that act as creditors in the market.

The Ninth Circuit openly acknowledged that itwas rejecting the D.C. Circuit’s ruling because itdisagreed with it. Indeed, the Ninth Circuit evenbelittled the relevant part of Judge Tatel’s opinion as"statements made in passing, without analysis," in

23response to a "highly technical argument" from theFCC. Pet. App. 16a-17a. But whether or not theFCC’s argument was "highly technical," the D.C.Circuit’s treatment of it was analytically rigorous.Nor is this surprising. The applicability of theautomatic stay - and, specifically, of the lienenforcement exception to the regulatory exception tothe stay - was extensively briefed and argued in theD.C. Circuit in Next Wave. The Ninth Circuit’sassertion that this ruling was not "the D.C. Circuit’sreasoned conclusion that cancellation of an FCClicense is a lien-enforcement action," Pet. App. 16a, isunsupportable.10

If anything, the Ninth Circuit, not the D.C.Circuit, resolved this issue "in passing, withoutanalysis." Ignoring the express terms of the securityagreement, the Ninth Circuit asserted, withoutcitation or elaboration, that "the Security Agreementdoes not make cancellation a lien-enforcementremedy." Pet. App. 15a. In fact, as previously noted,the security agreement expressly states thatregulatory cancellation is the agency’s primaryremedy for default under the agreement itself. Id.87a-88a. Small wonder, then, that earlier in

Indeed, the D.C. Circuit carefully analyzed an earlierSecond Circuit decision in litigation between the FCC andNextWave to determine its preclusive effect with respect to thisvery issue, and held that the Second Circuit left open thequestion whether the license cancellation was a lienenforcement action and was therefore stayed regardless of itsregulatory character. Ne~tWave, 254 F.3d at 148-49. Thatdemonstrates the painstaking care the D.C. Circuit took inaddressing this issue.

24NextWave the FCC’s own counsel conceded thatregulatory cancellation under these circumstances istantamount to foreclosure on collateral. 254 F.3d at151.11

The Ninth Circuit also suggested that theauthority of the D.C. Circuit’s ruling on this issuewas somehow diminished by the fact that thisCourt’s own Next Wave decision simply "did notaddress the question whether license cancellationconstituted lien enforcement." Pet. App. 17a. Butthis Court did not vacate or reverse the D.C. Circuitin NextWave- it affirmed it, without in any waydisturbing the court of appeals’ ruling on this issue.Certainly, the affirmanee by this Court did notreduce the authority of the D.C. Circuit’s decision onany issues this Court declined to address.12

To be sure, because this Court in Next Wave didnot itself address the precise question of whether the

The D.C. Circuit also rejected the FCC’s automatic stayargument on additional independent grounds. 254 F.3d at 150.But the existence of alternative rationales for a ruling does notdiminish the authority of each alternative. "Courts routinelydecide cases on multiple grounds, each of which has been fullylitigated and given careful consideration due to their potentiallydispositive role in the case .... [I]t would be curious toconclude that none of these findings were necessary to thejudgment .... " Jean Alexander Cosmetics, Inc. v. L’Oreal USA,Inc., 458 F.3d 244, 253 (3d Cir. 2006), cert. denied, 127 S.Ct.1878 (2007).1~ See, e.g., Sierra Club v. Whitman, 285 F.3d 63, 68 (D.C.Cir. 2002) (relying on holding by court of appeals on an issuethat was not reached by Supreme Court in affirming thatdecision in Georgetown University Hospital v. Bowen, 821 F.2d750, 756-58 (D.C. Cir. 1987), a£fd, 488 U.S. 204 (1988)).

25license cancellation was also an act to enforce theFCC’s security interest, the Ninth Circuit was notbound by precedent on that specific issue. It wastherefore free to disagree with the D.C. Circuit, andit did so. Review by this Court is, however,appropriate under just these circumstances.

II. The Ninth Circuit’s Rigid Dichotomy Betweenthe FCC’s Roles as Regulator and Creditor IsContrary to this Court’s Next Wa ve Decision.

Review of the Ninth Circuit’s decision is alsowarranted because its reasoning runs directlycounter to this Court’s approach in Next Wage.While the NextWave majority did not address thespecific issue whether the FCC’s regulatorycancellation is also an act to enforce its securityinterest, the Court did grapple with the overarchingquestion of the relationship between the FCC’s rolesas regulator and creditor. In both NextWave andthis case, the FCC’s constant argument has beenthat because its actions have a regulatory aspect,those actions have no creditor dimension and aretherefore exempt from creditor-debtor law. In thiscase, the Ninth Circuit accepted the FCC’s either/orframing of the issue and held that because the FCCused its regulatory power to respond to default on adebt to it, the agency was not acting as a creditor andcommercial law simply did not apply.

In NextWaye, however, this Court took just theopposite tack and emphatically rejected thedichotomy that the FCC has attempted to drivebetween its regulatory and creditor roles. The FCCargued in NextWage that it did not violate § 525 by

26automatically canceling NextWave’s licenses inresponse to NextWave’s default on its installmentpayments, because NextWave’s obligation to pay wasnot a "debt" as required by § 525. 537 U.S. at 302.According to the FCC, NextWave’s paymentobligation was not a debt because it was a"regulatory condition" that the FCC imposed as aregulator rather than as a creditor. Id. But thisCourt rejected the FCC’s dichotomy out of hand anddismissed the unfounded notion that regulatorypowers and obligations cannot coexist withcommercial or creditor-debtor relationships. In theCourt’s pithy formulation, "a debt is a debt, evenwhen the obligation to pay it is also a regulatorycondition." Id at 303.

The Court also rejected the FCC’s attempt toescape § 525 by smuggling in its regulator-creditordichotomy in second guise. Even if NextWave’spayment obligation was a debt (as well as aregulatory condition), the FCC argued that becauseit had a "valid regulatory motive" for thecancellation, it had not canceled NextWave’s licenses"solely because" of NextWave’s nonpayment of itsdebt. See 537 U.S. at 301. The Court againdisagreed. The regulatory motive behind the FCC’sactions did not change the fact that it canceledNextWave’s licenses for failure to pay a debt. Id.

The Court’s analysis in Next Wave isfundamentally at odds with the Ninth Circuit’sdecision in this case, which accepts the FCC’spremise that because the FCC’s license cancellationhas a regulatory dimension, it is ipso facto not acreditor action. In NextWave, the FCC could not

27escape its obligations under federal creditor-debtorlaw merely because it was acting pursuant to itsregulatory powers. But that is precisely what theNinth Circuit allowed here.

The Ninth Circuit’s opinion also cannot bereconciled with NextWave insofar as the NinthCircuit held that Magnacom’s unwaivable right tothe surplus proceeds was defeated by sections of theCommunications Act providing that spectrumlicensees hold their licenses subject to conditionsimposed by the FCC and have no property interest inthe underlying spectrum. See Pet. App. 8a-9a. TheFCC made the same argument in NextWaye,contending that § 525 of the Bankruptcy Code wouldconflict with these same provisions of theCommunications Act if the former prohibited theFCC from enforcing the payment condition on thelicenses. FCC Br. in NextWave, at 46-48. But theCourt rejected the FCC’s contention because theCommunications Act says nothing at all about thecredit and cancellation program here:

[N]othing in those provisions demands thatcancellation be the sanction for failure to makeagreed-upon periodic payments. Indeed,nothing in those provisions even requires theCommission to permit payment to be madeover time, rather than leaving it toimpecunious bidders to finance the fullpurchase price with private lenders.

537 U.S. at 304. A fortiori, nothing in theCommunications Act controls the question of theparties’ respective rights to the monetary proceeds

28when the FCC provides secured financing and thencancels licenses when the bidders cannot make theirpayments. 13

Even the dissenting opinion in NextW~ve rejectedthe FCC’s dichotomy between regulatory andcreditor actions accepted by the Ninth Circuit in thiscase. Directly contradicting the Ninth Circuit here -and consistent with the D.C. Circuit’s NextW~yedecision - Justice Breyer’s NextWsve dissentrecognized that regulatory cancellation under thepresent circumstances is equivalent to enforcementof the FCC’s security interest. As he explained, "Inthese ve.r.y cases, the Government sought to retakeits license through enforcement of its securityinterest." 537 U.S. at 320 (Breyer, J., dissenting). Itdid so when "the FCC declared the licenses void fornonpayment. In a word, the FCC sought to repossess

Nor does any other statute or regulation - other thanU.C.C. Article 9 - address the issue of the right to proceedswhen the FCC cancels licenses for nonpayment. See Pet. App.38a ("nothing in the Federal Communications Act (FCA) or FCCregulations governs this issue, allowing this Court to look to theUCC for guidance in determining federal common law").Tacitly recognizing that it lacked any other authority for itsargument, the FCC contended that an informal opinion letterauthored by its general counsel that does briefly address theissues, Leonard J. Kennedy, Esq., 11 F.C.C.R. 21572 (1996),was entitled to Chegro~ deference. But the Ninth Circuitproperly rejected that contention under this Court’s decisions inChristensen v. Harris County, 529 U.S. 576 (2000), and UnitedStates v. Mead Corp., 533 U.S. 218 (2001). Pet. App. 10a n.7.

29the licenses so that it could auction the relatedspectrum space to other users." Id. at 312.14

Thus, all nine Justices in NextWave rejected theFCC’s position that creditor and regulatory actionsare mutually exclusive. This Court’s decision cannotbe reconciled with the Ninth Circuit’s holding in thiscase that the FCC’s "regulatory and contractual rightto cancel Magnacom’s licenses.., was separate andindependent from the FCC’s rights as a securedcreditor." Pet. App. 19a. The Ninth Circuit did notpurport to explain how repossession via cancellationwas somehow not a disposition of collateral underfederal common law incorporating U.C.C. Article 9 -it merely held that the FCC’s exercise of regulatoryauthority avoided that inquiry altogether. Thatholding runs contrary to this Court’s holding inNext Wave and merits review by the Court.

14 Despite rejecting the FCC’s premise, Justice Breyer

would have ruled for the agency in NextWave because hebelieved enforcement of § 525 under these circumstances led toan "anomaly" in which ordinary secured creditors can enforcetheir security interests, but the FCC cannot. 537 U.S. at 319-20. As the Ninth Circuit recognized, the majority in NextWave"did not address the question whether license cancellationconstituted lien enforcement." Pet. App. 17a. The majority did,however, disagree with Justice Breyer’s view that enforcementof the plain language of § 525 created an "anomaly," becausethe cancellation power that the FCC sought to exercise wentbeyond the rights of ordinary secured creditors to enforce theirsecurity interests "in the bankruptcy process." 537 U.S. at 307.

3OIII. The Ninth Circuit’s Decision Is Contrary to

Ki~bell Foods and Other Decisions HoldingThat Federal Agencies Are Bound by the SameRules That Apply to other Creditors.

Finally, the Ninth Circuit’s decision upends theestablished rule that federal agencies that chose toact as creditors in the marketplace are bound by thesame uniform state law rules that applies to all othercreditors. See K~’mbell Foods, 440 U.S. at 722-29.15Agencies often act as creditors in the market theyregulate. And commercial actors structure theirtransactions in regulated markets based on theunderstanding that a uniform set of debtor-creditorlaw applies to federal agencies acting in themarketplace as well.

Indeed, this Court has long recognized the needfor certainty for investors, because "[i]n structuringfinancial transactions, businessmen depend on statecommercial law to provide the stability essential forreliable evaluation of the risks involved." KimbellFoods, 440 U.S. at 739. Giving federal creditorsspecial rights would "undermine that stability.Creditors who justifiably rely on state law.., wouldhave their expectations thwarted whenever a federalcontractual security interest" is exempted from

When federal agencies become commercial creditors,federal courts must "adopt the readymade body of state law asthe federal rule of decision until Congress strikes a differentaccommodation." K~’mbel] Foods, 440 U.S. at 740; see alsoO’Melveny & Mjzers v. FI~IC, 512 U.S. 79, 85 (1994) ("mattersleft unaddressed [by a federal regulatory] scheme arepresumably left subject to the disposition provided by statelaw").

31generally applicable requirements. Id. The Courttherefore has refused "to override intricate state lawsof general applicability on which private creditorsbase their daily commercial transactions." Id. at 729.

Consistent with Kimbell Foods, the lower courtsroutinely apply the uniform body of commercial lawsupplied by the U.C.C. to federal agencies conductingcommercial transactions. See, e.g., United States v.Currituek Grain, Inc., 6 F.3d 200, 207 (4th Cir. 1993)(applying U.C.C. in context of Farmer’s HomeAdministration loans and holding that "absentcongressional direction to the contrary,nondiscriminatory state commercial law applies to... federal lenders"); United States v. ProgressiveFarmers Marketing Agency, 788 F.2d 1327, 1329(Sth Cir. 1986) (applying U.C.C. where FmHA actedas creditor); United States v. Tugwel], 779 F.2d 5, 7(4th Cir. 1985) (per curiam) (same).

Moreover, the lower courts routinely apply federaldebtor-creditor law incorporating the U.C.C. evenwhen an agency claims it would be inconsistent withits regulations. See United States v. Walter Dunlap& Sons, Inc., 800 F.2d 1232, 1238-39 (3d Cir. 1986)(where FmHA acted as creditor, holding that federallaw incorporating U.C.C. applied rather than agencyregulation); Chicago Title Ins. Co. v. Shorted VillageAssoes., 708 F.2d 804, 808 (1st Cir. 1983) (holdingthat agency regulations did not displace state lawapplicable to HUD as lender); In re Kennedy, 785F.2d 1553, 1556 (llth Cir. 1986) (holding that agencyregulations did not displace state law applicable toFmHA as lender).

32The Ninth Circuit’s holding allows every federal

agency to evade generally applicable creditor-debtorlaws by invoking its regulatory purposes for anyaction. Every federal agency that extends creditsubject to security interests does so in furtherance ofa broader regulatory agenda. The FCC is neither thefirst nor will it be the last federal agency to attemptto use its regulatory authority over a creditor to itsbenefit - particularly where the "benefit" is recoveryof funds that would otherwise go to other creditorsunder routine application of the U.C.C. As the Courtobserved in NextWave, "[i]t is hard to imagine asituation in which a governmental unit would nothave some further motive behind the cancellation -assuring the financial solvency of the licensed entity,or punishing lawlessness, or even (quite simply)making itself financially whole." 537 U.S. at 301(citations omitted); see ~]so NextWave, 254 F.3d at153 (rejecting theory that "would allow governmentalunits to escape section 525’s limitations simply byinvoking a regulatory motive for their concern withtimely payment").

The Ninth Circuit’s decision undermines thestability provided by uniform commercial law in justthe manner Kimbel] _Foods warned against.Magnacom’s creditors and equity holders made theirinvestments in the company against the backdrop ofstate commercial law that gives a debtor likeMagnacom an unwaivable right to surplus proceedswhen a secured creditor disposes of collateral inresponse to the debtor’s default on its payment. Aspreviously explained, this important guaranteeprotects debtors (and their other creditors) in the

33very situation here: where fluctuating markets leavethem in temporary distress. Although a securedcreditor has the right to look to its collateral forrepayment under these circumstances, that rightextends only up to the amount of the debt itself, sothat any surplus is available to pay the debtor’sother creditors. Indeed, it is undisputed that if theFCC had left "it to impecunious bidders to financethe full purchase price [of the licenses] with privatelenders," NextWsye, 537 U.S. at 304, Magnacom’sbankruptcy estate would be entitled to the surplusproceeds from the sale of its licenses after thesecured private lender had been paid in full. Theentire point of Kimbe]] Foods is that the same rulesshould apply to the FCC when it chooses to become asecured creditor.

Indeed, at every step of the way in this case, theFCC took advantage of its rights as a creditor.Supra at 4-9. But when the reauctioning of thelicense rights netted more than Magnacom owed, theFCC suddenly reversed course and disclaimed itscreditor status in an effort to thwart the debtor’sunwaivable right to the surplus. CY. In re Next W~ vet~ersona] Commc’~s Inc., 244 B.R. 253, 257-63(Bankr. S.D.N.Y. 2000) (detailing similar reversals ofposition by FCC in NextWave litigation as spectrumprices moved up and down), vacated sub nora. In reFCC, 217 F.3d 125 (2d Cir. 2000).

The Ninth Circuit gave its imprimatur to thisgamesmanship. It applauded the FCC’s exploitationof its regulatory power to avoid its obligations as acreditor. But under I~’~bel] Foods, a federal creditor

34must take the bitter with the sweet. As the SeventhCircuit explained in a decision by Judge Easterbrook:

To say, as KJ~bol] Foods. do[es], thatfederal creditors presumptively have the samerights under state law as do private creditorsis to say that they also have the sameobligations and limitations. If the federalagency, as creditor, oversteps its rights inseizing collateral, it is answerable under theUCC ....

Gordon v. Kreul, 77 F.3d 152, 155 (7th Cir. 1996).

CONCLUSION

The petition for writ of certiorari should begranted.

John S. RiperJoseph M. CamposJesse D. MillerSTANISLAW ASHBAUGH,LLP

701 Fifth AvenueSuite 4400Seattle, WA 98104-7012(206) 386-5900

December 14, 2007

Respectfully submitted,

Donald B. Verrilli, Jr.William M. Hohengarten

Counsel o£ RocordDuane C. PozzaMatthew S. HellmanJENNER & BLOCK LLP601 Thirteenth Street, NWSuite 1200 SouthWashington, DC 20005(202) 639-6000

Counsel for Petitioner