In re Worldcom, Inc.

• Decision Date: 23 February 2007
• Docket Number: No. 02-13533 (AJG).,02-13533 (AJG).
• Citation: 362 B.R. 96
• Parties: In re WORLDCOM, INC., et al., Reorganized Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

362 B.R. 96

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

No. 02-13533 (AJG).

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

February 23, 2007.

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Stinson Morrison Hecker LLP (Mark A. Shaiken, Esq., Of Counsel), Kansas City, MO, Special Counsel to the Reorganized Debtors.

Lieben, Whitted, Houghton, Slowiaczek & Cavanagh, PC, LLO (James B. Cavanagh, Esq., Of Counsel), Omaha, NE, Schlam Stone & Dolan LLP (Bennette D. Kramer, Esq., Of Counsel), New York, NY, Attorneys for the Waldinger Corporation.

OPINION GRANTING REORGANIZED DEBTORS' PARTIAL SUMMARY JUDGMENT MOTION TO RECLASSIFY PROOF OF CLAIM NUMBER 3059 AS UNSECURED AND DENYING WALDINGER CORPORATION'S CROSS-MOTION FOR SUMMARY JUDGMENT

ARTHUR J. GONZALEZ, Bankruptcy Judge.

I. INTRODUCTION

Before the Court is the Motion of WorldCom, Inc., MCI Telecommunications Corp., and their subsidiaries (collectively, the "Debtors," or "WorldCom") for partial summary judgment to reclassify proof of claim number 3059 (the "Claim") filed by the Waldinger Corporation ("Waldinger") as unsecured. Waldinger moves for summary judgment that the Claim is secured. Additionally, Waldinger moves for summary judgment that the Claim is oversecured, thereby entitling it to the Nebraska statutory interest rate for a mechanic's lien of 12% per annum ("Interest") and the recovery of all fees and expenses, including attorney's fees (collectively, "Attorney's Fees") pursuant to section 506 of chapter 11 of title 11 of the United States Code (the "Bankruptcy Code").

II. JURISDICTION

The Court has subject matter jurisdiction over this proceeding pursuant to sections 1334 and 157(b) of title 28 of the United States Code, the July 10, 1984 "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J.), and paragraph 32 of the Court's Order Confirming Debtors' Modified Second Amended Joint Plan of Reorganization under chapter 11 of title 11 of the United States Code. This matter is a core proceeding pursuant to section 157(b)(2)(B) of title 28 of the United States Code. Venue is proper before the Court pursuant to sections 1408 and 1409 of title 28 of the United States Code.

III. BACKGROUND

On July 21, 2002 (the "Commencement Date") and November 8, 2002, the Debtors commenced cases under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). By orders dated July 22, 2002 and November 12, 2002, the Debtors' chapter 11 cases were consolidated for procedural purposes.

By order dated October. 29, 2002, the Court established January 23, 2003 as the deadline for the filing of proofs of claim against the Debtors (the "Bar Date"). By order dated October 31, 2003, the Court confirmed the Debtors' Modified Second Amended Joint Plan of Reorganization (the "Plan"). On April 20, 2004, the Plan became effective (the "Effective Date"). Upon the Effective Date, WorldCom changed its name to MCI, Inc. On January 6, 2006, Verizon Communications, Inc. and MCI merged. Under the merger agreement, MCI, Inc. merged with and into Eli Acquisition, LLC, as a direct, wholly owned subsidiary of Verizon Communications Inc. Eli Acquisition LLC, as the surviving entity, was immediately renamed MCI, LLC. MCI, LLC is now doing business as Verizon Business Global LLC.

Waldinger is engaged in the construction business in Omaha, Nebraska. WorldCom owns a certain, property in Omaha, Nebraska (the "Omaha Property") located at 4226 South 80^th Street. WorldCom purchased and paid for three Air Handler Units (the "AHUs") from Waldinger. Waldinger alleges that WorldCom requested that it install the AHUs on the Omaha Property (the "Installation"). WorldCom maintains, among other things, that it did not authorize the Installation. Further, Waldinger alleges that on or around March 28, 2001,¹ it began to perform construction and provide the materials (collectively, the "Construction Services") necessary to install the AHUs on the Omaha property. WorldCom did not pay Waldinger for the Construction Services. On or about October 29, 2001, Waldinger filed a claim of lien (the "Lien") on the Omaha Property pursuant to the Nebraska Construction Lien Act, Neb. Rev. Stat § 52-125, et seq (the "Nebraska Statute"). The Lien was in the amount of $463,862 for the cost of the Installation, which included $371,362 for the Construction Services already performed.² On January 29, 2002, Waldinger filed a petition in the Nebraska state court (the "State Court Proceeding") to recover the money from WorldCom for the Construction Services. On, or about March 6, 2002, WorldCom removed the State Court Proceeding to federal court (the "Federal Court Proceeding"). The State Court Proceeding and the Federal Court Proceeding were for breach of contract and quantum meruit. Those proceedings were not brought as actions to foreclose the Lien.³

On or about March 22, 2002, Waldinger voluntarily withdrew the claim from the Federal Court Proceeding without prejudice. On or, about June 26, 2002, Waldinger and the Debtors reached a settlement agreement (the "Settlement Agreement"). Under the Settlement Agreement, WorldCom agreed to pay $371,362 for the services already rendered and pay an additional $128,356 upon completion of the Installation, and WorldCom denied any wrongdoing or responsibility regarding its actions with respect to the Installation. Additionally, under the Settlement Agreement "if any party is required to employ counsel to enforce its rights, the prevailing party shall recover its attorneys' fees and costs incurred in enforcing its rights." Settlement Agreement ¶ 5.5. Waldinger never completed the Installation and was not paid the $371,362.⁴

On December 3, 2002, Waldinger filed the Claim. Waldinger alleges that the Claim is secured by the Lien. The Claim seeks the principal of $371,362 plus Interest and Attorney's Fees pursuant to section 506 of the Bankruptcy Code.

Under the Plan, Class 3 Other Secured Claims ("Class 3 Claims," or "Other Secured Claims") are entitled to payment in full, plus any interest required to be paid pursuant to section 506.⁵ In contrast, Class 6 WorldCom General Unsecured Claims ("Class 6 Claims") are impaired and are not entitled to payment of Interest or Attorney's Fees.

On October 15, 2004, as part of the Seventy-Second Omnibus Objection, the Debtors sought to expunge and disallow the Claim, alleging that the Claim is disputed and unsecured. On November 16, 2004, Waldinger filed the Response of the Waldinger Corporation to the Debtors' Seventy-Second Omnibus Objection to Proofs of Claim. On July 27, 2005, the Debtors filed a motion for partial summary judgment that the Claim is unsecured and filed a memorandum of law supporting the motion on July 28, 2005 (collectively, the "Debtors' Partial Summary Judgment Motion"). On September 20, 2005, Waldinger Med the Opposition to the Debtors' Partial Summary Judgment Motion on Claim No. 3059 and the Cross-Motion for Summary Judgment on Claim No. 3059. On October 31, 2005, the Debtors filed the Debtors' Reply to Opposition of the Waldinger Corporation to Debtors' Motion for Partial Summary Judgment and Debtors' Response in Opposition to Cross-Motion for Summary Judgment on Claim No. 3059 Filed by the Waldinger Corporation. The Court heard this matter on January 31, 2006 (the "Hearing"). Subsequent to the Hearing, the Debtors and Waldinger submitted supplemental memoranda of law addressing certain issues that were raised at the Hearing (the "First Supplemental Briefing").⁶ Subsequent to the submission of the supplemental memoranda, the Court directed that the Debtors and Waldinger more fully address certain issues which were implicated by Waldinger's and the Debtors' arguments (the "Second Supplemental Briefing"). In response, the Debtors and Waldinger submitted briefs primarily focusing whether sections 362(b)(3) and 546(b)(2) or section 108(c) were applicable to the Claim during the pendency of the automatic stay of section 362. On September 7, 2006, Waldinger submitted the Second Supplemental Memorandum Brief of the Waldinger Corporation in Opposition to Debtors' Motion for Partial Summary Judgment on Claim No. 3059 and the Waldinger Corporation's Cross-Motion for Summary Judgment on Claim No. 3059 (the "Waldinger's Second Supplemental Memorandum").⁷ Additionally, Waldinger submitted an addendum to Waldinger's Second Supplemental Memorandum, dated September 8, 2006. On September 21, 2006, the Debtors submitted the Debtors' Response to Second Supplemental Memorandum Brief of the Waldinger Corporation in, Opposition to Debtors' Motion for Partial Summary Judgment on Claim No. 3059 and the Waldinger Corporation's Cross-Motion for Summary Judgment.

IV. DISCUSSION

Regarding the validity of the Lien issue, the Debtors and Waldinger dispute, among other things, whether WorldCom authorized such services at the time the Construction Services were performed. Under Nebraska Law, a mechanic's lien is not valid absent a contract between the parties. Mid-America Maintenance, Inc. v. Bill Morris Ford, Inc., 232 Neb. 920, 442 N.W.2d 869, 871 (1989) (interpreting Neb.Rev.Stat. § 52-131). Prior to the Second Supplemental Briefing, the Debtors argued, that even if the Lien was valid when filed, the Lien lapsed because Waldinger failed to bring a suit to foreclose the Lien (the "Foreclosure Action") within the statutory time period required by Nebraska Law ("Statute of Limitations") and the Lien lapsed. In the Second Supplemental Briefing, the Debtors argue that sections 362(b)(3) and 546(b)(2) were applicable. Therefore; the Debtors argue that Waldinger was required to provide notice pursuant to section 546(b)(2) in lieu of the Foreclosure Action and failed to do so. As such, the Debtors conclude that the Lien lapsed on October 29, 2003, two years after the filing of the Lien.

Waldinger argues that as a result of the...