In re Worldcom, Inc.
| Decision Date | 02 May 2007 |
| Docket Number | No. 02-13533 (AJG).,02-13533 (AJG). |
| Parties | In re WORLDCOM, INC., et al., Reorganized Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Robert L. Driscoll, Esq., Allison M. Murdock, Esq., Jodi M. Hoss, Esq., Stinson Morrison Hecker LLP, Kansas City, MO, for the Reorganized Debtors.
John M. Callagy, Esq., Robert S. Friedman, Esq., Kelley Drye & Warren LLP, New York, NY, for Parus Holdings, Inc.
OPINION PARTIALLY GRANTING AND PARTIALLY DENYING DEBTORS' MOTION FOR SUMMARY JUDGMENT AND MOTION TO STRIKE PORTIONS OF AFFIDAVITS
WorldCom, Inc. ("WorldCom") and certain of its direct and indirect subsidiaries, as debtors and debtors in possession (collectively, referred to as the "Debtors" herein at all times pre- and post-petition) filed a motion for summary judgment and a motion to strike portions of affidavits submitted as evidence to defeat summary judgment by Parus Holdings, Inc. ("Parus").
The Court has subject matter jurisdiction over this proceeding pursuant to sections 1334(b) and 157(a) of title 28 of the United States Code. This matter is a core proceeding within the meaning of section 157(b) of title 28 of the United States Code. Venue is properly before the Court, pursuant to sections 1408 and 1409 of title 28 of the United States Code.
The Debtors provided a broad range of communication services in over 200 countries on six continents. Through their core communications service business, which includes voice, data, internet and international services, the Debtors carried more data over its networks than any other entity. The Debtors were the second largest carrier of consumer and small business long distance telecommunications services in the United States and provided a wide range of retail and wholesale communications services.
Intermedia Communications, Inc. ("Intermedia"), a Delaware corporation with its principal place of business in Florida, was a provider of integrated data and voice telecom, internet access, and local and long-distance phone services to approximately 90,000 small and medium sized businesses. On September 5, 2000, Intermedia entered into a merger agreement with WorldCom. On November 17, 2000, the United States filed a complaint against WorldCom and Intermedia under the Clayton Act. United States v. World-Com, Inc., 2001 WL 1188484, at *1 (D.D.C. June 27, 2001). The final judgment entered by the District Court for the District of Columbia ("D.C. District Court") ordered WorldCom "to divest the Intermedia Assets as an ongoing, viable business...." Id. at *2. The order further provided that WorldCom "shall not take any action, direct or indirect, that will impede in any way the operation, sale, or divestiture of the Intermedia Assets." Id. at *3. "Intermedia Assets" was defined by the D.C. District Court to include "all contracts, teaming arrangements, agreements, leases, commitments, certifications, and understandings, relating to the Intermedia Assets, including supply agreements...." Id. at *1.
On November 20, 2000, Intermedia and EffectNet LLC ("EffectNet"), a Nevada company with its principal place of business in Arizona of which Parus is the successor-in-interest, entered into a Unified Communications Services General Agreement ("UC Contract") whereby EffectNet was to provide telecommunication services to Intermedia. The launch date of the UC Contract began in December 2000 and had an initial term of three years. Section 5.2 provided that "[t]ermination due to default under this Section shall be effective thirty (30) days after written notice to the defaulting Party if the default has not been cured within such thirty (30) day period." Section 12.3, titled Governing Law, provided that "[t]his Agreement will be, interpreted in accordance with the laws of the state of Arizona, excluding its conflict of law rules."
On January 1, 2001, EffectNet announced a proposed merger with a company called Webley Systems, Inc. ("Webley"). Salomon. Smith Barney ("Salomon") was retained by Webley to help raise $35 million in financing for corporate purposes. However, Salomon conditioned such assistance upon the completion of the proposed EffectNet/Webley merger because of "the significant forecasted customer base and revenue EffectNet would generate under the UC Contract."
In April and May of 2001, Salomon solicited potential private investors to aid in the financing initiative. WorldCom Ventures (included within the term "World-Com"), a WorldCom venture capital firm, was one of the potential investors that was contacted. According to Parus's proofs of claim, on or about the same time, World-Com was negotiating a Master Agreement for Software Licenses ("MASL") with Webley. Upon being contacted as a potential investor, WorldCom, in May 2001, received access to a private placement memorandum, which included, among other things, "information regarding the Effect-Net UC Contract and its expected, generated revenues over the term of the contract." Parus alleges that "[i]t was clear from the investor presentation that the forecasted revenues from the UC Contract were a major component to EffectNet's and Webley's `bottom line.'" According to Parus's proofs of claim
The Debtor and [Intermedia, in claim no. 11242; MCI, in claim no. 11173] agreed to cause Intermedia to breach the [UC Contract] in an effort to wrongfully improve the Debtor's bargaining position with respect to [the MASL]. The Debtor and Intermedia knew that the termination of the [UC Contract] would place EffectNet and Webley in a position of severe financial distress, and would therefore force Webley to accept onerous terms in the negotiation of the MASL that favored the Debtor to a much greater degree than would have been possible had the [UC Contract] been in full, force and effect.
On July 1, 2001, WorldCom, a Georgia corporation with its headquarters in Mississippi, acquired Intermedia pursuant to the merger of a wholly owned subsidiary of WorldCom with and into Intermedia. According to Parus, after the completion of the merger, "Intermedia's project manager for the UC Contract was terminated and Intermedia's sales force was disbanded through terminations of employment or reassignment to other projects." Moreover, "Parus was ... informed at that time that hundreds of sales personnel — who had been trained by EffectNet to provide support under the UC Contract — were told to stop working on the project." Thereafter, Intermedia cancelled 682 of then-existing 729 subscriptions under the UC Contract in September 2001. On September 14, 2001, WorldCom and Webley executed the MASL. In February of 2002, EffectNet invoiced Intermedia for services provided in December 2001 under the UC Contract. However, Intermedia did not pay these invoices. WorldCom concedes, and Parus does not dispute,' that "[o]n or about March 1, 2002, Intermedia requested cancellation of all remaining services under the UC Contract."
On March 12, 2002, the general counsel of Parus, Robert C. McConnell, wrote a letter ("March 12th Letter") to Rich Black, senior vice president of Intermedia at the time, informing him that Intermedia had breached Section 52 of the UC Contract by failing to pay for services provided by EffectNet
EffectNet hereby gives Intermedia written notice of default under Section 5.2 of the Agreement with respect to the Intermedia Defaults and EffectNet further hereby gives Intermedia written notice that EffectNet may (i) terminate this Agreement under Section 5.2 due to default effective thirty (30) days after this written notice if each of the Intermedia Defaults has not been cured within such thirty (30) day period, and (ii) further exercise all available remedies pursuant to the terms of the Agreement and as otherwise may be available at law or in equity.
In his letter, Mr. McConnell requested payment of past due amounts beginning from December 2001 and informed Intermedia that it had "until the expiration of thirty (30) days after this written notice to remit the Required Payment." On March 25, 2002, Mr. McConnell wrote a letter ("Match 25th Letter") to Brett Bacon of MCl/WorldCom informing him that none of the past payments had been received and therefore, Intermedia was still in default under the UC Contract. Mr. McConnell further informed Mr. Bacon that
[T]he Agreement in Section 5.2 provides that "[t]ermination due to default under this Section shall be effective thirty (30) days after written notice to the defaulting Party if the default has not been cured within such thirty (30) day period." Accordingly, the Agreement will be terminated for default by Intermedia on or about April 12, 2002 if the Intermedia Defaults are not cured prior thereto.
Both the March 12th Letter and March 25th Letter ended with the same statement reserving EffectNet's rights
Nothing in this letter is intended to be a waiver or release of any rights or remedies, or an election thereof, that EffectNet has under the Agreement or applicable law, and all such rights and remedies are hereby expressly reserved in their entirety.
EffectNet did not receive a response to either of Mr. McConnell's letters and thereafter ceased performing its duties under the UC Contract.
On July 21, 2002 and November 8, 2002, the Debtors commenced cases under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On October 29, 2002, the Court entered an order establishing January 23, 2003, as the bar date for filing proofs of claim (the "Bar Date"). By entry of the Confirmation Order on October 31, 2003, the Court confirmed a plan of reorganization (the "Plan"). The Plan became effective on April 20, 2004 (the "Effective Date"). Upon the Effective Date, WorldCom changed its name to MCI, Inc. On January 6, 2006, Verizon...
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