In re Personal Computer Network, Inc.
| Decision Date | 28 March 1989 |
| Docket Number | 87 B 7306 and 87 A 1223.,No. 88 C 10091,88 C 10091 |
| Citation | 97 BR 909 |
| Parties | In re PERSONAL COMPUTER NETWORK, INC., an Illinois corporation, Debtor. DIRECTIONAL INTERNATIONAL, LTD., Access Microcenters, Inc. and the New Personal Computer Network, Inc., Plaintiffs-Appellees, v. ILLINOIS BELL TELEPHONE COMPANY, Defendant-Appellant. |
| Court | U.S. District Court — Northern District of Illinois |
Robert B. Chatz, John W. Costello, Charles S. Stahl, Jr., James T. Arvey, Michael R. Enright, Michael M. Eidelman, Arvey, Hodes, Costello & Burman, Chicago, Ill., for plaintiffs-appellees.
L. Bow Pritchett and Ronald E. Cundiff, Chicago, Ill., for defendant-appellant.
Pursuant to 28 U.S.C. § 158(a), appellant Illinois Bell Telephone Company ("Illinois Bell") appeals the final order entered by the bankruptcy court in this adversary proceeding on October 12, 1988. In that ruling, the bankruptcy court granted summary judgment to appellees Directional International, Ltd.; Access Microcenters, Inc.; and the New Personal Computer Network, Inc. (collectively, "D.I."). For the reasons stated herein, the decision of the bankruptcy court is affirmed.
The underlying bankruptcy matter to which this adversary proceeding is allegedly related1 began when Personal Computer Network, Inc. ("PC Network") filed a voluntary Chapter 11 petition in bankruptcy. Shortly after PC Network filed its petition, D.I. made an offer to purchase substantially all of PC Network's assets. At the time, PC Network was operating its business as a debtor-in-possession. On October 30, 1987, Chief Bankruptcy Judge John D. Schwartz approved the sale proposed by D.I. In its order, the bankruptcy court declared that D.I. purchased PC Network's assets "free and clear of all liens, claims, interests and encumbrances."2 Specifically included in the list of PC Network's assets sold to D.I. were PC Network's telephone numbers, both long distance and local. After the sale, D.I., using the name "The New Personal Computer Network, Inc.," began operating the business formerly run by PC Network.
In November 1987, D.I. informed Illinois Bell that it had taken over PC Network's business and expressed its desire to retain the telephone numbers previously used by PC Network. Illinois Bell told D.I. that in order to use the telephone numbers employed by PC Network, D.I. would have to assume responsibility for all outstanding charges on PC Network's accounts. Illinois Bell stated to D.I. that if it did not wish to incur liability for PC Network's accounts, it could open new telephone accounts with Illinois Bell. In that case, Illinois Bell would terminate its service to the existing telephone numbers and assign new telephone numbers to D.I.
D.I. was dissatisfied with the options it received from Illinois Bell. Naturally, D.I. did not want to incur the liabilities associated with PC Network's accounts. However, because a substantial amount of the business derives from catalogue sales placed by phone, and because large sums of money had been spent advertising PC Network's telephone numbers, D.I. desired to use the same phone numbers which PC Network had employed. Therefore, D.I. instituted this adversary proceeding in the bankruptcy court which had ordered the sale of PC Network to D.I. In its adversary complaint, D.I. asked the bankruptcy court to preliminarily and permanently enjoin Illinois Bell from requiring payment of PC Network's prebankruptcy debt as a condition to D.I.'s use of the telephone numbers formerly used by PC Network. D.I. claimed that under the purchase agreement approved by the bankruptcy court, it had a right to use those numbers without incurring liability for PC Network's outstanding debt on its accounts.
Illinois Bell moved to dismiss the adversary complaint on two grounds. First, Illinois Bell claimed that the bankruptcy court lacked jurisdiction to determine the respective rights of D.I. and Illinois Bell to the telephone numbers at issue. Illinois Bell asserted that PC Network never "owned" the phone numbers and, consequently, the phone numbers did not become part of the bankruptcy estate when PC Network filed for bankruptcy. Illinois Bell argued that since the dispute over the phone numbers constituted a mere disagreement between two "strangers" to the estate concerning property not part of the estate, the dispute was not a "core proceeding" or a "related" proceeding over which the bankruptcy court had jurisdiction.3 Alternatively, Illinois Bell argued that even assuming the bankruptcy court had jurisdiction, D.I.'s adversary complaint failed to state a claim upon which relief could be granted. Illinois Bell contended that since PC Network never owned the phone numbers, the numbers could not have been sold to D.I. as part of PC Network's assets. Therefore, D.I. had no rights in the telephone numbers.
The bankruptcy court rejected these arguments. Relying on two cases which it found "strikingly similar" to the instant case, the court held that the telephone numbers were property of the estate over which it had summary jurisdiction. In re Personal Computer Network, Inc., 85 B.R. 507 (Bankr.N.D.Ill.1988). The court then found that D.I. had acquired the right to use these phone numbers when it purchased PC Network's assets. Therefore, the court denied Illinois Bell's motion to dismiss and enjoined Illinois Bell from discontinuing service to the phone numbers based on D.I.'s failure to assume liability for PC Network's accounts.
Illinois Bell sought leave to appeal the bankruptcy court's decision, but its motion was denied. In re Personal Computer Network, Inc., 89 B.R. 17 (N.D.Ill.1988). Judge Hart found that the denial of Illinois Bell's motion to dismiss was a nonappealable interlocutory order. Id. at 18-19. Subsequently, D.I. moved for summary judgment. Relying on essentially "the same reasons Illinois Bell's motion to dismiss was denied," the bankruptcy court granted D.I.'s motion for summary judgment on October 12, 1988. Illinois Bell has now appealed that ruling. On appeal, Illinois Bell raises the same two arguments that it raised before the bankruptcy court in its motion to dismiss. Illinois Bell's position is that the bankruptcy court lacked jurisdiction to decide the issues raised in the adversary complaint and, even if the bankruptcy court had jurisdiction, the complaint fails to state a claim upon which relief can be granted.
In concluding that it had jurisdiction over D.I.'s adversary complaint, the bankruptcy court relied on In re Fontainebleau Hotel Corp., 508 F.2d 1056 (5th Cir.1975), and In re Kassuba, 396 F.Supp. 324 (N.D.Ill.1975). In both Fontainebleau and Kassuba, the debtor filed for reorganization and continued operating its business as a debtor-in-possession. In each case, the debtor, which owed unpaid telephone charges to its telephone company, was subsequently notified by the telephone company that it had two options concerning its future telephone service. As in the instant case, the telephone company informed its customer that it could either pay its outstanding prebankruptcy debt and continue with existing service or begin new service using new telephone numbers. Fontainebleau, 508 F.2d at 1058; Kassuba, 396 F.Supp. at 325. In both Fontainebleau and Kassuba, the bankruptcy court held that the debtor did not have to accept the telephone company's options. Each court enjoined the phone company from requiring the payment of prebankruptcy debt as a condition to continued service under the existing phone numbers. Id. The phone company in each case then appealed the bankruptcy court's order. Each phone company questioned whether the bankruptcy court had jurisdiction to enter such an order. Id.
In the Fontainebleau appeal, the Fifth Circuit found that the bankruptcy court had properly exercised jurisdiction. The court, citing Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481, 60 S.Ct. 628, 629, 84 L.Ed. 876 (1940), stated:
For the bankruptcy court to have summary jurisdiction, the debtor or his trustee must have possession, constructive or actual, of the property in question. He need not, however, have title to the property.
508 F.2d at 1058. The court then found that the debtor had possession of the phone numbers it was using at the time it filed its petition. The court reasoned that "(r)ight of use is surely the most important attribute of possession, and the debtor clearly had the right of use as to these phone numbers at the time the petition in bankruptcy was filed." Id. at 1059. Therefore, the court ruled that the bankruptcy court had summary jurisdiction over the phone numbers and had the power to issue the injunction. Id.
Similarly, in the Kassuba appeal, the district court found that the bankruptcy court had properly exercised summary jurisdiction over the phone numbers being used by the debtor at the time he filed for bankruptcy. Judge Will, relying on Fontainebleau, concluded that the phone numbers came within the bankruptcy court's jurisdiction by virtue of the debtor's possession of them. 396 F.Supp. at 326. The court therefore affirmed the bankruptcy court's decision ordering the telephone company to continue service to the debtor under the current phone numbers without requiring the debtor to pay its prebankruptcy telephone service debt. Id.
In the instant case, Illinois Bell has indicated to this court that it "does not disagree with the results in either Fontainebleau or Kassuba."4 Brief for Appellant at 12. However, Illinois Bell argues that these cases are distinguishable from the instant case. Illinois Bell points out that in both Fontainebleau and Kassuba, jurisdiction over the telephone numbers was asserted on the basis of debtor's possession of the numbers. In the instant adversary proceeding, the debtor—PC Network—no longer has possession of the phone numbers. Therefore, Illinois Bell maintains that...
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