Court Says Maybe

In a case viewed with considerable interest by many wireless industry participants, the U.S. Court of Appeals for the Federal Circuit (“the Federal Circuit”) has denied a request by a jilted auction participant for money damages against the FCC. 

The case arose from an auction of an FM station in 1998. The FCC awarded the license to the high bidder even though the high bidder had failed to submit certain pre-auction documentation that the FCC had said was essential to being allowed to participate in the auction. The second-highest bidder (Biltmore Forest Broadcasting FM) challenged the FCC’s decision through the usual appellate channels all the way to the Supreme Court. Bowing to the time-worn policy that administrative agencies are best able to interpret their own rules, these courts deferred to the FCC’s determination that the mandatory pre-auction eligibility criteria were actually just “admonishments.” (Full disclosure: the author represents the challenging applicant.)

Still outraged by the FCC’s post-auction manipulation of the rules, Biltmore Forest decided to take a novel path. Having been denied the radio license it felt it deserved, it turned to the U.S. Court of Federal Claims for money damages from the FCC. It sought over $8 million in damages for breach of the contract that it alleged had been established by the eligibility ground rules announced prior to the auction.

The trial court dismissed the case because a decision some years ago seemed to indicate that the Court of Claims had no jurisdiction over FCC licensing matters. Biltmore Forest appealed to the Federal Circuit, pointing out that if the U.S. Court of Appeals for the D.C. Circuit (“the D.C. Circuit”) disclaims any jurisdiction over contract claims and the Court of Claims refuses to hear FCC license cases, the FCC can breach licensing contracts with impunity and the victimized applicant has no court to turn to. The appellate panel refused to re-visit the determination of the panel in the earlier case.

On the plus side, the Federal Circuit did seem to acknowledge that the FCC’s auction process creates a contract between the winning applicant and the Commission. If a rule violation is alleged (as Biltmore Forest alleged), the applicant’s path of challenge must be to the D.C. Circuit. However, if there was no rule violation at stake – for example, if the FCC failed to deliver a license that a high bidder had won or if the FCC delivered less than it had promised – the logic of the Court’s analysis implied that the applicant might very well have recourse to the Claims Court for money damages.  This issue arises more and more often when the FCC threatens to take away or undercut the value of spectrum which it has already auctioned. At some point, its failure to deliver the spectrum as advertised becomes a breach of the auction contract.

It remains to be seen whether the jilted applicant will pay another visit to the Supreme Court.  The original application was filed in 1987, but there are certain wounds that time does not heal.