In re iPCS, Inc.
| Decision Date | 19 August 2003 |
| Docket Number | No. 03-62696-WHD.,No. 03-62697-WHD.,No. 03-62695-WHD.,03-62695-WHD.,03-62696-WHD.,03-62697-WHD. |
| Citation | 297 B.R. 283 |
| Parties | In the Matter of iPCS, INC., iPCS Wireless, Inc. iPCS Equipment, Inc., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
James C. Cifelli, Esq., Lamberth, Cifelli, Stokes & Stout, Atlanta, GA, for Debtors.
E. Penn Nicholson, Esq., Powell, Goldstein, Frazer & Murphy, Atlanta, GA, Andrew N. Rosenberg, Esq., Paul, Weiss, Rifkind, et al., New York City, for Official Committee of Unsecured Creditors.
Daniel J. King, Esq., James A. Pardo, Esq., King & Spalding, LLP, Atlanta, GA, for Sprint Spectrum, L.P.; Sprint Communications Company, L.P.; WirelessCo, L.P.; SprintCom, Inc.
Before the Court is the Application for Authorization to Commence and Prosecute Suit (hereinafter the "Application"), which was filed by the Official Committee of Unsecured Creditors of iPCS, Inc. (hereinafter the "Committee") in the above-captioned bankruptcy proceeding. The Application is opposed by Sprint Spectrum, L.P. (hereinafter "Spectrum"), Sprint Communications Company, L.P., WirelessCo L.P. (hereinafter "WirelessCo"), and SprintCom, Inc. (hereinafter "SprintCom").
On February 23, 2003, iPCS, Inc. (hereinafter "iPCS"), iPCS Wireless, Inc. (hereinafter "iPCS Wireless"), and iPCS Equipment, Inc. (collectively referred to hereinafter as the "Debtors"), all Delaware corporations, filed voluntary petitions under Chapter 11 of the Bankruptcy Code. To this date, the Debtors continue to operate their businesses as debtors-in-possession. On March 13, 2003, the United States Trustee appointed the Committee.
Since 1999, the Debtors, through certain management and services agreements with WirelessCo, Spectrum, and SprintCom (hereinafter the "Sprint Companies"), has constructed, operated, managed, and maintained a wireless, personal communications network throughout the Midwest (hereinafter the "Network"). In accordance with these agreements, the Debtors have the exclusive right to provide personal telecommunications services to customers under the Sprint and Sprint PCS brand names in the area covered by the Network. In turn, the contractual relationship allows the Sprint Companies to utilize the Network in order to provide their customers with a nationwide cellular telephone network. Pursuant to the Management Agreement, the Debtors are entitled to 92% of the "Collected Revenue," as defined within the agreement. Under the Services Agreement, the Debtors agreed to pay the Sprint Companies to provide certain services to the Debtors, including billing, collection, and customer care services.
On February 23, 2003, iPCS and iPCS Wireless filed a complaint against the Sprint Companies and Sprint Corporation seeking equitable relief and damages. The Debtors allege that the Sprint Companies have breached the Management and Services Agreements by, among other things, failing to calculate the amount of the Collected Revenue in accordance with the terms of the Management Agreement and charging the Debtors various fees that are not authorized under the Agreements. In their complaint, the Debtors state that they have provided notice to the Sprint Companies of the Debtors' intent to terminate the Agreements in accordance with their terms and allege that the Sprint Companies' conduct has resulted in an event of default, which entitles the Debtors to demand that the Sprint Companies purchase the Debtors' business for an amount to be determined in accordance with the terms of Agreements.
The Debtors seek a declaratory judgment that the Sprint Companies have defaulted under the terms of the Agreements and specific performance of the Agreements. The Debtors have also requested that the Court issue preliminary and permanent injunctions requiring the Sprint Companies to pay to the Debtors on a weekly basis their share of the revenue, without any deductions for fees or setoffs, and to provide a monthly accounting of the revenues generated by the Network. Additionally, the Debtors assert that, due to the intricate nature of the accounts and transactions between the parties, the Debtors are incapable of independently determining the true amounts owed by the Sprint Companies to the Debtors. Accordingly, the Debtors ask the Court to order the Sprint Companies to provide a comprehensive accounting of all transactions between the parties since 1999. The Debtors further assert that, due to the broad discretion provided to the Sprint Companies under the Agreements, the Sprint Companies owed the Debtors duties of good faith and fair dealing, as well as "heightened duties of care and good faith in the performance of [their] obligations and responsibilities under the agreements." The Debtors allege that the Sprint Companies breached these duties, causing severe damages to the Debtors.
On April 29, 2003, the Committee filed the Application for authority to file and prosecute a complaint against the Sprint Corporation and the Sprint Companies on behalf of the Debtors. The Committee's proposed complaint alleges that the Sprint Companies misused the Management and Services Agreements to gain substantial influence over the business operations and financial affairs of the Debtors, resulting in the Debtors' becoming "nothing more than mere instrumentalities, alter ego corporations and/or agents operating under the control and direction of" the Sprint Companies. Based upon these allegations, the Committee contends that the Sprint Companies should be held liable for the payment of the Debtors' debts under several legal theories, including common business enterprise, agency, and alter ego.
The Sprint Companies object to the Application. Following a hearing on the Application, the Court took this matter under advisement.
The ability to avoid fraudulent or preferential transfers and recover other property rights for the benefit of the estate is often an integral part of a debtor's attempts to reorganize. The statutes that create the ability to do so expressly state that the trustee is empowered to wield these powers on behalf of the estate. See 11 U.S.C. §§ 542; 544; 547; 548; 549; 550. In recognition of the fact that, in a reorganization, the appointment of a trustee is generally the exception, rather than the rule, the Bankruptcy Code vests a debtor-in-possession with the powers of a trustee in the event no trustee is appointed. See 11 U.S.C. § 1107(a).1 Accordingly, a debtor-in-possession has the power to bring causes of action on behalf of the estate, such as avoidance actions.
A debtor may have additional causes of action at the time a bankruptcy case is commenced, which become property of the debtor's bankruptcy estate. See 11 U.S.C. § 541; Miller v. Shallowford Community Hosp., Inc., 767 F.2d 1556 (11th Cir.1985). The prosecution of these claims may be equally, if not more, crucial to the success of the debtor's reorganization. Such may include claims against the debtor's officers and directors for mismanagement and waste or breach of contract claims against a third party. In the event that no trustee is appointed, the debtor-in-possession is authorized and, in fact, duty-bound, to assert cognizable claims in an effort to recover damages for the benefit of the estate. See Louisiana World Exposition v. Federal Ins. Co., 858 F.2d 233, 245-46 (5th Cir.1988). Accordingly, the debtor-in-possession may bring any claim that the debtor may have brought prior to the filing of the bankruptcy case. Id.
It is clear to the Court that, assuming the Debtors have standing to bring alter ego/instrumentality claims against the Sprint Companies, the Debtors, acting in their capacities as debtors-in-possession, would be authorized to bring these claims on behalf of the estates. The questions before the Court are: 1) whether derivative standing exists such that the Committee could bring these claims on behalf of the estate; and 2) if such standing exists, whether the Court should allow the Committee to exercise it by filing a complaint.
While the Committee urges the Court to answer both questions in the affirmative, the Sprint Companies oppose such a resolution of these issues. The Sprint Companies first argue that, under the plain language of the Bankruptcy Code and recent Supreme Court authority, a creditors' committee does not have standing to pursue litigation on behalf of a debtor's estate. Further, the Sprint Companies assert that, even if such standing did exist, the Committee has failed to demonstrate, and cannot demonstrate, that the proposed litigation would be in the best interest of the Debtors' estates.
As discussed above, the Bankruptcy Code vests authority to sue on behalf of the bankruptcy estate in the trustee, or, in a Chapter 11 case in which no trustee is appointed, the debtor-in-possession. 11 U.S.C. §§ 323; 1107. Pursuant to § 1103, a creditors' committee may: 1) consult with the trustee or debtor-in-possession concerning the administration of the case; 2) investigate the acts, conduct, assets, liabilities, and financial condition of the debtor and other matters relevant to the case; 3) participate in the formulation of a plan; 4) request to appointment of a trustee or examiner; and 5) perform such other services as are in the interest of those represented by the committee. Id. § 1103(c). Section 1109(b) provides certain parties, including a creditors' committee, the right to "raise" and "appear and be heard on any issue." Id. § 1109(b). The Committee maintains that the combined effect of §§ 1103(c)(5) and 1109(b) is to grant a creditors' committee the right to pursue litigation on behalf of the estate when the debtor-in-possession fails to do so and it would be in the best interest of the estate.
The Sprint Companies point to the plain language of §...
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