In re Worldcom, Inc.

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: Stein
• Citation: In re Worldcom, Inc., 339 B.R. 836 (S.D. N.Y. 2006)
• Decision Date: 30 March 2006
• Docket Number: No. 05 Civ. 05532(SHS).,Bankruptcy No. 03-46590.,No. 05 Civ. 05533(SHS).,No. 05 Civ. 04547(SHS).,05 Civ. 04547(SHS).,05 Civ. 05532(SHS).,05 Civ. 05533(SHS).
• Parties: In re WORLDCOM, INC., et al., Debtors. Victor O. Browning, Appellant, v. MCI, Inc., Reorganized Debtor-Appellee. Oscar C. Pinkston, Appellant, v. MCI, Inc., Reorganized Debtor-Appellee.

339 B.R. 836

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

Victor O. Browning, Appellant, v. MCI, Inc., Reorganized Debtor-Appellee.

Oscar C. Pinkston, Appellant, v. MCI, Inc., Reorganized Debtor-Appellee.

Bankruptcy No. 03-46590.

No. 05 Civ. 04547(SHS).

No. 05 Civ. 05532(SHS).

No. 05 Civ. 05533(SHS).

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

March 30, 2006.

COPYRIGHT MATERIAL OMITTED

Barry J. Dichter, Cadwalader, Wickersham & Taft LLP, New York, NY, for Appellant, Victor O. Browning.

Marcia Landweber Goldstein, Weil, Gotshal & Manges LLP, New York, NY, Victoria Howard Jueds, Steven Bernard Fabrizio, David Andrew Handzo, Joseph Alex Ward, Jenner & Block, L.L.P., Washington, DC, Alfredo R. Perez, Weil, Gotshal & Manges LLP, Houston, TX, for Reorganized Debtor-Appellee.

Larry A. Golston, Jr., Beasley, Allen, Crow, Methvin, Portis & Miles, P.C., Montgomery, AL, for Appellant, Oscar C. Pinkston.

OPINION & ORDER

STEIN, District Judge.

Oscar C. Pinkston and Victor O. Browning appeal from an order of the United States Bankruptcy Court for the Southern District of New York granting a motion by appellee MCI, Inc. to bar the prosecution of certain property-related claims initiated by Pinkston and Browning. In a Memorandum Decision dated February 14, 2005, Bankruptcy Judge Arthur J. Gonzalez ruled that any valid claims possessed by appellants were pre-petition in nature and therefore had been discharged by the confirmation of appellee's plan of reorganization. In re Worldcom, Inc., 320 B.R. 772, 784 (Bankr.S.D.N.Y.2005). Because neither Pinkston nor Browning have valid claims that arose subsequent to the confirmation of appellee's plan of reorganization, this Court affirms the bankruptcy court's ruling that appellants' claims are discharged.

I. BACKGROUND

Worldcom, Inc. was a leading telecommunications carrier that provided a broad range of services when it and various subsidiaries filed for bankruptcy protection pursuant to chapter 11 of title 11 of the United States Code in July and November of 2002. Id. at 774. The bankruptcy court confirmed Worldcom's plan of reorganization by order dated October 31, 2003. Id. The reorganized debtor emerged as MCI Worldcom Communications, Inc. ("MCI"), still a dominant telecommunications carrier. Id.

The claims that MCI seeks to bar involve alleged trespasses by the pre-petition debtor, Worldcom. Pinkston and Browning each filed lawsuits outside of this district seeking redress for fiber optic cables installed by Worldcom underneath the surface of their property and the property of others similarly situated. Id. at 774-5. These cables — which transmit light pulses over long distances — were installed along rights of way legally possessed by certain railroad companies. Id. Appellants' suits rested on theories of both trespass and unjust enrichment. Id. at 774.

Browning's suit was filed in Kansas state court and began prior to Worldcom's bankruptcy filing. Browning v. MCI Worldcom Network Services, et al., No. 0104-CV-144 (Kan. Dist. Ct. Leavenworth County). After the defendants removed the case to Kansas federal court, it was transferred to the United States District Court for the Northern District of Oklahoma. Worldcom, 320 B.R. at 774. It was administratively closed by that court upon Worldcom's chapter 11 filing. Id.

Pinkston's suit, on the other hand, was not filed until after the effective date of Worldcom's plan. In April 2004, Pinkston sued MCI in Alabama state court. Pinkston v. ITC Deltacom, et al., No. 2004-CV-646 (Ala. Cir. Ct. Montgomery County). The suit was then removed to the United States District Court for the Middle District of Alabama. Worldcom, 320 B.R. at 774.

MCI then moved in the United States Bankruptcy Court for the Southern District of New York — where Worldcom's bankruptcy petition had been filed — for an order barring the further prosecution of Pinkston's and Browning's claims, arguing that those claims were pre-petition in nature and had therefore been discharged by the confirmation of Worldcom's plan of reorganization. In granting MCI's motion, Judge Gonzalez found under both Kansas and Alabama law that (i) the pulses MCI transmits through fiber optic cables constitute intangible trespasses, which in the absence of substantial damages are not actionable; and (ii) the cables themselves constitute pre-petition permanent trespasses that were discharged upon the confirmation of Worldcom's plan of reorganization. Id. at 782, 783. As noted above, Pinkston and Browning have appealed that determination to this Court.

II. STANDARD OF REVIEW

Because the order of the bankruptcy court below is a final one, this Court has jurisdiction on appeal pursuant to 28 U.S.C. § 158(a). The bankruptcy court's findings of fact must be accepted by this Court unless they are clearly erroneous, whereas the bankruptcy court's findings of law are reviewed de novo. Rosefielde v. Toledano, 04-CV-8254, 2005 U.S. Dist. LEXIS 3422, at *5, 2005 WL 525441, at *2 (S.D.N.Y. Mar. 4, 2005); Homemaker Indus. v. Official Comm. of Unsecured Creditors of HKMR, Inc., 03-CV-9303, 2004 U.S. Dist. LEXIS 6682, at *9, 2004 WL 838168, at *3 (S.D.N.Y. Apr. 20, 2004).

III. DISCUSSION

Both before the bankruptcy court and on appeal, appellants' claims are framed broadly and encompass both (i) the repeated transmission of intangible pulses through fiber optic cables onto their property; and (ii) the existence and use of the tangible cables themselves. Appellants assert that the use of fiber optic cables to transmit pulses onto their property constitutes a continuing — as distinguished from a permanent — trespass under both Kansas and Alabama law, thereby giving rise to successive and post-petition causes of action not discharged by the confirmation of Worldcom's plan of reorganization. In disposing of these contentions, the bankruptcy court first found that state law governs the validity of plaintiffs' continuing trespass claims and then held that, since those claims failed under state law, appellants were left with permanent trespasses that had been discharged by the confirmation of Worldcom's plan. Worldcom, 320 B.R. at 780-83.

A. Discharge of Claims

Before reaching the state law issues, a threshold matter need be addressed: MCI asserts — and appellants dispute — that the bankruptcy court should not have examined state law in the first place because bankruptcy law determines when a claim arises and is thus fully dispositive of appellants' claims.

Section 1141(d)(1)(A) of the Bankruptcy Code provides that the confirmation of a debtor's plan of reorganization discharges "any debt that arose before the date of such confirmation." The Bankruptcy Code defines "debt" as a "liability on a claim." 11 U.S.C. § 101(12). A claim is only discharged by a plan of reorganization if the claimant possessed a right to payment prior to the reorganized debtor's petition date. See In re Chateaugay Corp., 53 F.3d 478, 497 (2d Cir.1995) ("Chateaugay II").

The bankruptcy court found that section 1141(d)(1)(A) required it to look to state law because, while that statute and bankruptcy law more generally govern claim accrual, state law determines the elements of a particular claim and, in this case, "the elements for each alleged trespass by the light signal did not exist until it had been sent." Worldcom, 320 B.R. at 776. In challenging this approach, MCI relies on the United States Court of Appeals for the Second Circuit's decision in In re Chateaugay Corp., 944 F.2d 997 (2d Cir.1991) ("Chateaugay I"). In Chateaugay I, the EPA had identified fourteen sites at which the former debtor had been deemed potentially responsible for environmental cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act. Id. at 999. The Second Circuit held that the still-unincurred costs were nonetheless pre-petition claims discharged by the confirmation of the debtor's plan because the "relationship between environmental regulating agencies and those subject to regulation provides sufficient `contemplation' of contingencies to bring most ultimately maturing payment obligations based on pre-petition conduct within the definition of `claims.'" Id. at 1005; see also 11 U.S.C. § 101(5) (defining "claim" as involving "a right to payment, whether or not such right is ... contingent, matured, [or] unmatured").

However, appellants' continuing trespass claim is distinguishable from the EPA's contingent claim in Chateaugay I as well as the other cases outside this jurisdiction cited by MCI. In those cases, the underlying conduct giving rise to the discharged claim occurred pre-petition, whereas only ancillary elemental requirements of the claim — such as injury or, in Chateaugay I, remedial costs — arose post-petition, rendering the claims sufficiently "contingent" prior to the petition date to be deemed existent at that time. See, e.g., In re Cox, 53 B.R. 829, 832 (Bankr.M.D.Fla.1985). In this case, as the bankruptcy court noted, if appellants' theory is correct, a new state law tort exists each time the fiber optic cables are utilized. Unlike Chateaugay I, which involved "ultimately maturing payment obligations based on pre-petition conduct," 944 F.2d at 1005, any obligations here stem from entirely post-petition conduct.¹ Therefore, to the extent that the alleged trespasses are continuing, claims arising from them have not been discharged pursuant to 11 U.S.C. § 1141(d)(1)(A).

B. Continuing vs. Permanent Trespass

While the precise configuration of appellants' claims insofar as they involve the intangible light pulses and the tangible fiber optic claims is unclear, this Court will examine the pulses and cables separately to ensure that the entirety of appellants' contentions are captured.

i. The Light Pulses

The bankruptcy court held that, under both Kansas and Alabama law, any valid continuing trespass claims held by appellants could not arise from the intangible light pulses alone. Worldcom, 320...