In re Worldcom, Inc., Bankruptcy No. 02-13533(AJG).

• Decision Date: 16 May 2006
• Docket Number: Bankruptcy No. 02-13533(AJG).,Adversary No. 04-02954(AJG).
• Citation: 343 B.R. 430
• Parties: In re WORLDCOM, INC., et al., Reorganized Debtors. Worldcom, Inc. and MCI Worldcom Network Services, Inc., Plaintiffs, v. PPL Prism, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

343 B.R. 430

In re WORLDCOM, INC., et al., Reorganized Debtors.

Worldcom, Inc. and MCI Worldcom Network Services, Inc., Plaintiffs, v. PPL Prism, LLC, Defendant.

Bankruptcy No. 02-13533(AJG).

Adversary No. 04-02954(AJG).

United States Bankruptcy Court, S.D. New York.

May 16, 2006.

Jenner & Block LLP, David A. Handzo, of Counsel, Washington, DC, for Reorganized

Debtors, Plaintiffs¹.

Hunton & Williams LLP, Shawn Patrick Regan, of Counsel, New York, NY, Bradley R. Duncan, Jerry L. Hall, Kimberly L. Nelson, of Counsel, McLean, VA, for Defendant.

OPINION DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

ARTHUR J. GONZALEZ, Bankruptcy Judge.

The telecommunications company MCI WorldCom Network Services, Inc. ("MCI," "WorldCom," the "Plaintiffs," or the "Debtors"), purchased an "indefeasible right of use" ("IRU") of six fibers in the Baltimore area from Cambrian Communications, LLC ("Cambrian"). Cambrian subsequently filed for bankruptcy and sold these fibers to PPL Prism, LLC ("PPL"). MCI and PPL dispute their rights in the fibers. In essence, MCI claims that PPL should allow MCI to access and use the fibers, while PPL asserts that it has no such duty. Both parties moved for summary judgment. Given the history of the transactions and judicial proceedings among Cambrian, MCI, and PPL, the Court holds that MCI has a right to access and use the fibers that is enforceable against PPL. PPL's motion for summary judgment is therefore denied and MCI's motion for summary judgment granted.

JURISDICTION

The Court has subject matter jurisdiction over this proceeding pursuant to sections 1334² and 157(b) of title 28 of the United States Code, under the July 10, 1984 "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J.), and under paragraph 32 of this Court's Order Confirming Debtors' Modified Second Amended Joint Plan of Reorganization under chapter 11 of title 11 of the United States Code (Oct. 31, 2003). The Court has the power to decide core proceedings, which include matters concerning the property of the estate. 28 U.S.C. § 157(b)(2)(E), (K), (M) (2000).³ Venue is properly before this Court pursuant to section 1409 of title 28 of the United States Code. The parties do not dispute that the Court has jurisdiction, that the instant matter is a core proceeding, and that venue is proper. (Pls.' Compl. ¶¶ 6-8; Def.'s Answer ¶¶ 6-8.)

FACTS

On or about June 4, 2002, MCI and Cambrian entered into an IRU Agreement and a Maintenance Agreement (the "Agreements")⁴ a covering six fibers in the Baltimore area. Under the IRU Agreement, MCI agreed to purchase from Cambrian a 20-year "indefeasible right of use" of the fibers for a one-time $575,000 fee. (IRU Agreement ¶¶ 1.06, 2.01, 4.01, Ex. B.) Under the Maintenance Agreement, Cambrian agreed to maintain the fibers for the duration of the IRU Agreement and MCI agreed to pay a one-time $216,000 fee for "all routine, preventive and reactive maintenance" and a "proportionate share" of actual costs with a 20% mark-up for "unscheduled and emergency maintenance." (Maintenance Agreement ¶¶ 1.01, 2.01, 3.01, 4.01; IRU Agreement ¶ 1.02.)

Starting on July 21, 2002, MCI and its affiliates filed for bankruptcy in this Court. On September 20, 2002, Cambrian filed for bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia (the "Virginia Court"). Cambrian's filing took place the day after MCI paid $791,000 to Cambrian, the total sum due under the IRU and Maintenance Agreements.

On or about February 6, 2003, PPL and Cambrian entered into an Asset Purchase Agreement "regarding the sale of substantially all of Cambrian's assets." (Statement of Undisputed Facts in Supp. of Mot. of PPL Prism, LLC for Summ. J. ¶ 7; MCI's Resp. to PPL's Statement of Undisputed Facts as to Which There Is No Genuine Issue To Be Tried ¶ 7; Aff. in Supp. of Mot. of PPL Prism, LLC for Summ. J. ¶ 2, Ex. A.) The sale included the fibers covered by the IRU Agreement, although MCI and PPL dispute the rights that each now enjoys in the fibers. (Statement of Undisputed Facts in Supp. of Mot. of PPL Prism, LLC for Summ. J. ¶ 2, 17; MCI's Resp. to PPL's Statement of Undisputed Facts as to Which There Is No Genuine Issue To Be Tried ¶ 2, 17; Aff. in Supp. of Mot. of PPL Prism, LLC for Summ. J. ¶¶ 2, 7-8, Ex. A.) An exhibit⁵ to the Asset Purchase Agreement provided that Cambrian would attempt to reject the IRU Agreement, but would also alternatively seek additional compensation from MCI in exchange of assuming the IRU Agreement and assigning it to PPL. (Aff. in Supp. of Mot. of PPL Prism, LLC for Summ. J. Ex. B.) This additional compensation, if obtained from MCI, would be evenly split between Cambrian and PPL. (Id.) MCI refused to give additional compensation to Cambrian in exchange for assumption of the contract. Cambrian sought on February 12, 2003, authorization from the Virginia Court to implement the Asset Purchase Agreement and, on February 13, authorization to reject the IRU and Maintenance Agreements.

On March 12, 2003, MCI moved before this Court for a determination that the motion to reject the IRU and Maintenance Agreements, which Cambrian had filed in the Virginia Court, violated the automatic stay in the Debtors' chapter 11 cases. Upon this request, this Court held the following:

Pending further order of this Court, Cambrian shall not proceed with its motion to reject with respect to the portion of the IRU Agreement in which Cambrian agreed to transfer to WorldCom an exclusive beneficial ownership interest in and indefeasible right of use of six fibers (the "IRU Fibers").... Cambrian therefore may proceed with its motion to reject the IRU Agreement and the Maintenance Agreement, but only with respect to those portions of the Agreements that do not involve WorldCom's claim to hold an ownership interest in the IRU Fibers.

This Order does not finally adjudicate the question of whether WorldCom or Cambrian presently holds the beneficial ownership interest in the IRU Fibers, and does not determine which is the appropriate court to determine that issue.

In re WorldCom, Inc., No. 02-13533 (Bankr.S.D.N.Y. Apr. 29, 2003) (Order Regarding Debtors' Motion for an Order Adjudging and Determining Cambrian Communications LLC in Violation of the Automatic Stay).

On March 17, 2003, MCI filed a response in the Virginia Court to Cambrian's motion for approval of the Asset Purchase Agreement. This submission did not object to the motion, but sought to explain "an understanding with Cambrian...." (Resp. of MCI WorldCom Network Services, Inc. to Mot. for Approval of Sale of Substantially All of the Debtor's Assets Free and Clear of Liens, Claims and Encumbrances and to Approve Conditional Assumption and Assignment of Certain Leases and Executory Contracts ¶ 1.)⁶ The understanding was that "Cambrian would carve the WorldCom IRU out of the sale agreement being reviewed by [the Virginia Court], so as to enable Cambrian to proceed with the sale while at the same time preserving WorldCom's right to assert that the IRU Agreement is not executory and that the IRU fibers cannot be sold free of WorldCom's interest." (Id. ¶ 4.) Letters from counsel to MCI and Cambrian evidencing the understanding were attached as an exhibit to the response. (Id.) The response also clarified that "WorldCom's decision not to object to the sale of Cambrian's assets [was] based on this understanding of what the sale will and will not encompass. To the extent that the sale of Cambrian's assets purported to include the WorldCom IRU or impair the IRU in any way, WorldCom would object to the Sale Motion on that basis." (Id. ¶ 5.)

On March 28, 2003, the Virginia Court granted the motion for approval of the Asset Purchase Agreement and approved the asset sale, which Cambrian and PPL closed on April 15, 2003. In granting the motion, the Virginia Court also held the following:

The Debtor [Cambrian] shall not assume or assign the IRU agreement ... between the Debtor and MCI WorldCom Network Services, Inc. ("WorldCom") (the "WorldCom IRU Agreement") pursuant to this Order. The Debtor and WorldCom reserve their respective rights with respect to the WorldCom IRU Agreement. The Order shall not negate, impair or prejudice in any way the rights, claims or interests of WorldCom under the WorldCom IRU Agreement, nor constitute a sale free and clear of any such rights, claims or interests. Nor shall this Order or the sale of assets approved pursuant to this Order impose any obligations on Buyer [PPL] with respect to the WorldCom IRU Agreement or the indefeasible right of use of fibers allegedly given to WorldCom under the WorldCom IRU Agreement. The rights of all parties are reserved for further determination.

In re Cambrian Commc'ns LLC, No. 02-84699 (Bankr.E.D.Va. Mar. 28, 2003) (Corrected Order Granting Motion for Approval of Sale of Substantially All of the Debtor's Assets Free and Clear of Liens, Claims and Encumbrances and to Approve Conditional Assumption and Assignment of Certain Leases and Executory Contracts 20-21).

MCI subsequently offered to buy 12 additional fibers from PPL. However, MCI indicated to PPL that, if this Court were to rule in MCI's favor, MCI intended to sell back to PPL MCI's rights in the six fibers covered by the IRU Agreement in exchange for a cash payment. On May 30, 2003, an employee of PPL's wrote an email to MCI stating that PPL was "not able to address the original IRU and the corresponding 6 fibers as they [did] not currently belong to PPLT [PPL Telcom]⁷ as part of the Asset Purchase." (Decl. of Cynthia A. Jackson in Supp. of MCI's Mot. for Summ. J. Ex. L.) On June 9, 2003, an employee of MCI responded to PPL that "then we only want the IRU for 6 fibers ... and we will take our chances of owning the other 6 fibers when the court decision is made." (Def.'s...