In re Teligent Services Inc.

• Decision Date: 06 July 2007
• Docket Number: Bankruptcy No. 01-12974.,Adversary No. 03-03378. 05 Civ. 7277(SAS).
• Citation: 372 B.R. 594
• Parties: In re TELIGENT SERVICES, INC., et al., Debtors. Savage & Associates, P.C. as the Unsecured Claim Estate Representative for and on behalf of Teligent, Inc., et al., Plaintiff-Appellant, v. Williams Communications, et al., Defendants-Appellees.
• Court: U.S. District Court — Southern District of New York

372 B.R. 594

In re TELIGENT SERVICES, INC., et al., Debtors Savage & Associates, P.C. as the Unsecured Claim Estate Representative for and on behalf of Teligent, Inc., et al., Plaintiff-Appellant, v. Williams Communications, et al., Defendants-Appellees.

Bankruptcy No. 01-12974.

Adversary No. 03-03378. 05 Civ. 7277(SAS).

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

July 6, 2007.

COPYRIGHT MATERIAL OMITTED

Denise Lynn Savage, Savage & Associates, P.C., Croton-on-Hudson, NY, for Appellant Savage & Associates, P.C.

Brian E. O'Connor, Willkie Farr & Gallagher LLP, New York, NY, for Appellee NextiraOne.

James S. Carr, Kelley Drye & Warren LLP, New York, NY, Andrew R. Turner, Conner & Winters, LLP, Tulsa, OK, for Appellee Wiltel.

OPINION AND ORDER

SCHEINDLIN, District Judge.

This barkruptcy appeal arises out of an adversary proceeding initiated by Savage and Associates, P.C. ("Savage") as the unsecured claim estate representative for and on behalf of Teligent, Inc. and twenty one other debtors. Savage seeks to avoid preferential payments allegedly made by Teligent to Williams Communications Solutions ("NextiraOne") and Williams Communications ("Wiltel") during the ninety day period ("Preference Period") prior to Teligent's voluntary Chapter 11 Bankruptcy filing.¹

In a memorandum opinion, the Bankruptcy Court held that (1) Savage failed to timely serve Wiltel with the complaint pursuant to Federal Rule of Civil Procedure 4(m) and Federal Rule of Bankruptcy Procedure 7004(a); (2) Savage did not show "good cause" for the thirteen month delay; (3) the circumstances did not call for the court to exercise its discretion in deeming Savage's late service as timely; (4) Savage may not amend the complaint to include Wiltel as a defendant because the amendment does not relate back to the original complaint; and (5) Teligent did not remit any of the payments to NextiraOne during the Preference Period.² Accordingly, the Bankruptcy Court (1) granted Wiltel's Rule 12(b) (5) motion to dismiss for lack of proper service, (2) denied Savage's motion to amend the complaint, and (3) granted NextiraOne's summary judgment motion to dismiss the complaint.³

The issues raised on appeal are (1) whether the Bankruptcy Court abused its discretion in holding that Savage did not show good cause for its thirteen month delay in effecting service on Wiltel; (2) whether the Bankruptcy Court abused its discretion in refusing to deem the delayed service as timely under the Federal Rules of Civil Procedure; (3) whether the Bankruptcy Court abused its discretion in denying Savage's motion to amend the complaint; and (4) whether the Bankruptcy Court erred as a matter of law in granting NextiraOne's motion for summary judgment.⁴ For the following reasons, the Bankruptcy Court's memorandum opinion is affirmed in its entirety.

I. BACKGROUND

A brief review of the relevant facts and procedural history are set forth below. For a full recitation see the Bankruptcy Court's May 13, 2005 Opinion and Order.⁵

Teligent filed a voluntary Chapter 11 bankruptcy petition on May 21, 2001. In the restructuring plan, Savage was appointed as the debtors' representative in charge of recovering preferential creditor payments made by Teligent during the Preference Period.⁶ Seeking to avoid payments in the amount of $313,180.89 made to "Williams Communications" Savage filed a complaint on May 14, 2003, one week before the statute of limitations expired on those claims.⁷ Savage initially served Williams Communications Solutions — the former Williams entity now known as NextiraOne.⁸ Savage did not serve Williams Communications, the former Williams entity now known as Wiltel, notwithstanding the fact that Teligent's vendor records indicated that Wiltel received at least four of the five transfers Savage sought to avoid.⁹

Upon receiving the complaint, NextiraOne learned that it was not the recipient of the transfers.¹⁰ NextiraOne informed Savage of that fact and suggested that Savage serve the correct defendant during the 120-day service period.¹¹ In an email exchange with counsel for Wiltel, Savage acknowledged its confusion regarding the relationship and roles of each Williams entity.¹² Thus, Savage understood that it may have served the wrong defendant but nevertheless pursued its suit against NextiraOne through the discovery phase of the proceedings.¹³ Throughout discovery, NextiraOne conveyed to Savage repeatedly that it was not the actual recipient of the transfers at issue.¹⁴

Seventeen months after filing the complaint, at the deposition of George Vareldzis, a key financial officer for NextiraOne, Savage learned yet again that NextiraOne had never received the transfers at issue.¹⁵ In light of the Vareldzis deposition, Savage finally acknowledged that Wiltel was the proper defendant, obtained a second summons from the court, and served Wiltel with the original complaint.¹⁶ Savage also requested leave of the court to amend the complaint to add Wilted as a defendant.

Upon receipt of the complaint, Wiltel filed a motion to dismiss on the ground that Savage's service was untimely as it was made thirteen months after the statute of limitations had expired.¹⁷ Meanwhile, NextiraOne filed a motion for summary judgment to dismiss the complaint claiming, as it had all along, that it was not the recipient of the transfers at issue.

On January 19, 2005, Bankruptcy Judge Alan L. Gopper heard arguments on Wiltel's motion to dismiss. During oral argument, Wiltel's counsel admitted on the record that Wiltel had in fact been the recipient of all of the Preference Period transfers at issue.¹⁸ Based on this admission, along with Savage's lack of evidence to the contrary, the Bankruptcy Court granted NextiraOne's summary judgment motion to dismiss.¹⁹

The Bankruptcy Court also granted Wiltel's motion to dismiss pursuant to Rule 12(b)(5) on the ground that Savage ha d failed to show good cause for its delay in serving the proper defendant and that the circumstances did not warrant exercising the court's discretion to extend the service deadline under Rule 4(m).²⁰ The court found that Savage had unjustifiably refused to heed NextiraOne's early warnings that Savage had served the wrong Williams entity. The court also concluded that Wiltel's defense would be prejudiced by this delay because it had lost key employees who possessed knowledge of Wiltel's financial relationship with Teligent.²¹ Lastly, after reviewing the evidence, the court denied Savage's motion to amend the complaint.²²

II. LEGAL STANDARD

A. Appeals of Bankruptcy Court Orders

1. Final Order

The district courts are vested with appellate jurisdiction over bankruptcy court rulings.²³ Final orders of the bankruptcy court may be appealed to the district court as of right.²⁴ An order is final if "[n]othing in the order ... indicates any anticipation that the decision will be reconsidered."²⁵

2. Standard of Review

A district court functions as an appellate court in reviewing judgments rendered by bankruptcy courts.²⁶ Findings of fact are reviewed for clear error.²⁷ A finding of fact is clearly erroneous if the court is "left with the definite and firm conviction that a mistake has been committed.'"²⁸ Thus, if the factual findings of the bankruptcy court are "plausible in light of the record viewed in its entirety," this Court "may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous."²⁹ A bankruptcy court's conclusions of law, by contrast, are reviewed de novo.³⁰

A bankruptcy court's exercise of its equitable authority is reviewed for abuse of discretion.³¹ A court abuses its discretion when it makes "(i) a decision `rest[ing] on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding,' or (ii) [makes] a decision that, `though not necessarily the product of a legal error or a clearly erroneous factual finding[,] cannot be located within the range of permissible decisions.'"³² "Moreover, `to further the purposes of Chapter 11 reorganization, a bankruptcy judge must have substantial freedom to tailor his orders to meet differing circumstances.'"³³

III. DISCUSSION

A. The Bankruptcy Court Correctly Held that Savage Did Not Show Good Cause for Its Delayed Service

Savage sought to serve Wiltel seventeen months after filing the original complaint and thirteen months after the 120 service period had expired. Federal Rule of Civil Procedure 4(m) allows for a plaintiff to serve a defendant after the 120 day service period in certain circumstances.³⁴ The rule provides, in pertinent part:

[I]f the plaintiff shows good cause for the failure [to serve the defendant within 120 days], the court shall extend the time for service for an appropriate period.³⁵

Accordingly, Savage had the burden of proving good cause for the thirteen month delay in service.³⁶

In an attempt to do so, Savage claims that Teligent's records did not reflect Wiltel and NextiraOne as distinct entities.³⁷ Savage only found one vendor number for all the Williams entities.³⁸ Savage also points out that the various names and addresses on the checks and the overlapping names and roles of each Williams entity accounted for Savage's confusion.³⁹ Some initial confusion on the part of Savage may have been justified — Savage was responsible for avoiding thousands of payments made by Teligent during the preference period, and each Williams entity's name is fairly similar.

However, the possible confusion by Sayage does rut excuse a thirteen month delay in service on Wiltel. Three of the checks did have Wiltel's former name on them, four of the checks were addressed directly to Wiltel, and all of the checks had Wiltel's address somewhere on the check.⁴⁰ Despite Savage's representation to the contrary, it did...