VERIZON WIRELESS SUES OVER ‘VOID’ NEXTWAVE AUCTION CONTRACT
Verizon Wireless is suing govt. to obtain remaining deposit from Jan. 2001 NextWave re-auction and is seeking ruling from U.S. Court of Federal Claims that auction “contract” for disputed licenses is void. Lawsuit came after FCC returned 85% of deposits from re-auction late last month but concluded winning bidders should continue for now to be held to nearly $16 billion in auction obligations (CD March 28 p1) until Supreme Court review plays out. Commission’s order described decision at that time as balancing act to preserve auction results pending Supreme Court review in NextWave case while returning most of deposits to bidders. In lawsuit filed Fri., Verizon Wireless also sought unspecified damages that it charged had been caused by “the FCC’s breach of the auction contract.” Litigation centers on $8.4 billion in auction prices for which Verizon Wireless successfully bid in Jan. 2001 re-auction and for which it technically still is liable. Verizon Wireless’s suit argued that it had suffered “substantial economic injury” as result of FCC’s contract “breach,” including effects on its credit rating and ability to borrow.
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Earlier this year, Supreme Court granted FCC request that it hear challenge to U.S. Appeals Court, D.C., ruling that overturned FCC decision to cancel NextWave licenses for missed payment. FCC order last month that returned $2.8 billion in re-auction deposits said that if high court’s ruling had effect of upholding re-auction results, bidders then could be held to original prices they had agreed to pay for spectrum. “By failing to deliver the spectrum licenses in a timely manner and by failing to return the entirety of Verizon Wireless’s deposit, the FCC has breached the material terms of the auction contract,” lawsuit said. “Moreover, because the FCC was unable and will remain unable to fulfill its obligations under the contract in any reasonable period of time, Verizon Wireless has the right to be freed from its obligations under the contract and have the contract rescinded.” Remaining liability for $8.4 billion affects credit rating of Verizon Wireless, “cost it incurs to obtain capital, its ability to raise capital in the equity markets and its ability to undertake other capital investments necessary to its business,” suit said. “The FCC has deprived Verizon Wireless of the use of, and interest on, the down payment funds that the FCC has unlawfully held and continues to hold.” Verizon Wireless also filed challenge Mon. in U.S. Appeals Court, D.C., to FCC’s March 27 order that returned 85% of NextWave re-auction deposits.
Lawsuit cited “contract” acknowledged by both Verizon and Commission that was formed when agency “affirmed its acceptance” of carrier’s bid offers by issuing public notice on terms and conditions for winning bids. Filing said contract included terms and conditions of public notices, FCC rules and practices for spectrum auctions and “general principles of law applicable to auction contracts.” Suit said “the resulting contract is subject to standard doctrines of contract law and contract interpretation.” Under contract terms, lawsuit argued FCC was required to deliver licenses “promptly” after auction closed. After D.C. Circuit ruling, which disagreed with FCC decisions to cancel NextWave licenses for missed payment, Commission returned licenses to NextWave to comply with ruling. Verizon lawsuit argued that FCC had pledged to return payments by winning bidders if they had to surrender licenses after final resolution of cases. Carrier said it undertook auction risk that it might have to surrender licenses if D.C. Circuit delivered adverse decision.
“It did not undertake the risks the FCC now seeks to impose on it -- that, if the court decision in the pending litigation made the licenses unavailable, the FCC would nonetheless compel Verizon Wireless for years to bear a contingent liability to pay more than $8 billion on 10 days’ notice if and when the FCC succeeds in reclaiming the licenses and tenders them,” suit said. Verizon Wireless argued that as result it would have to pay twice for spectrum, “paying currently to take the measures necessary to meet its immediate need for spectrum and later for the Auction No. 35 licenses if they are tendered; and would retain all or some of Verizon Wireless’s deposit for years without interest.” Suit contended FCC had “breached” promise it made to release Verizon from auction contract if licenses became unavailable as result of subsequent court action.
As for damages, suit said Verizon Wireless and Verizon had been “substantially damaged by the FCC’s material breach of the auction contract in continuing to insist that Verizon Wireless remains bound under the auction contract.” Other damages alleged include costs of mitigation and increased financing and other expenses directly linked to continuing obligations imposed by Commission. Lawsuit seeks remaining 15% of deposit ($261 million) from re-auction and asked court to award it “damages in compensation for the foregoing harms caused by the FCC’s material breach.” The filing didn’t specify a dollar figure.