In re Worldcom, Inc., Bankruptcy No. 02-13533 (AJG).

CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
Writing for the CourtArthur J. Gonzalez
Citation361 B.R. 697
PartiesIn re WORLDCOM, INC. et al., Reorganized Debtors. MCI Worldcom Communications, Inc., and Worldcom, Inc., Plaintiffs, v. HSG/ATN, Inc., Defendant.
Decision Date14 February 2007
Docket NumberAdversary No. 05-3143.,Bankruptcy No. 02-13533 (AJG).
361 B.R. 697
In re WORLDCOM, INC. et al., Reorganized Debtors.
MCI Worldcom Communications, Inc., and Worldcom, Inc., Plaintiffs,
v.
HSG/ATN, Inc., Defendant.
Bankruptcy No. 02-13533 (AJG).
Adversary No. 05-3143.
United States Bankruptcy Court, S.D. New York.
February 14, 2007.

Page 698

COPYRIGHT MATERIAL OMITTED

Page 699

COPYRIGHT MATERIAL OMITTED

Page 700

COPYRIGHT MATERIAL OMITTED

Page 701

COPYRIGHT MATERIAL OMITTED

Page 702

COPYRIGHT MATERIAL OMITTED

Page 703

Stinson Morrison Hecker LLP, Angela G. Heppner, Douglas Y. Curran, Of Counsel, Kansas City, MO, Michael E. Tucci, Of Counsel, Washington, DC, for Reorganized Debtors.

Morgenstern Jacobs & Blue, LLC, Eric Fisher, Of Counsel, New York, NY, for HSG/ATN, Inc.

OPINION REGARDING MOTIONS FOR SUMMARY JUDGMENT

ARTHUR J. GONZALEZ, Bankruptcy Judge.


I. Introduction

On February 19, 2003, HSG/ATN, Inc. ("HSG") filed a Notice of Motion For Allowance and Payment of Administrative Claim By HSG/ATN, Inc., pursuant to which HSG sought (1) earned commissions for the post-petition period of October 1, 2002 through December 16, 2002 in the approximate amount of $600,000, and (2) ongoing commissions that come due in the future.

On March 14, 2003, WorldCom, Inc. and certain of its direct and indirect subsidiaries, including MCI WorldCom. Communications, Inc., the debtors and the debtors-inpossession (collectively, "WorldCom" or the "Debtors") filed an objection to the Motion For Allowance and Payment of Administrative Claim. In addition, the Debtors also demanded that HSG turn over the Residual Commissions inadvertently paid by the Debtors to HSG for the period July 21-31, 2002 and the months of August and September 2002 (the "Post-petition Payments").

The Official Committee of Unsecured Creditors filed a Joinder to the Objection to Motion for Allowance and Payment of Administrative Claim on March 17, 2003. The Court held hearings on June 17, 20031 (the "June Hearing") and July 1, 20032 (the "July Hearing") with regard to the Motion For Allowance and Payment Of Administrative Claim (collectively, "Administrative Claim Proceeding").

On April 27, 2004, the Court denied HSG's administrative claim on the basis that HSG has failed to establish its entitlement to an administrative expense priority under sections 503(b)(1)(A) and 507(a)(1) of title 11 of the United States Code (the "Bankruptcy Code"). With respect to the Debtors' demand for the return of the post-petition payments, pursuant to section 549 of the Bankruptcy Code, the Court directed the Debtors to initiate an adversary proceeding pursuant to the Federal Rules of Bankruptcy Procedure to recover such payments.

On November 11, 2005, the Debtors filed an objection to claim numbers 38580 and 38583 (the "Claims Objection"), and filed their adversary proceeding. On February 22, 2006, HSG filed a motion for summary judgment on all matters contained in the adversary proceeding. On March 9, 2006, the Debtors filed a motion for summary judgment with respect to the Claims Objection. Thereafter, on April 25, 2006, the Court held a hearing regarding both motions.3

Page 704

II. Jurisdiction and Venue

The Court has subject matter jurisdiction over this adversary proceeding under sections 1334(a) and (b) and 157(a) and (b) of title 28 of the United States Code and under 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.). This is a core proceeding within the meaning of section 157(b)(2)(B), (C), (E), and (F) of title 28 of the United States Code.

Venue is properly before the Court pursuant to section 1409(a) of title 28 of the United States Code.

III. Facts

Although the Court assumes familiarity with its prior opinion in this case, the Court will reiterate certain facts relevant to the relationship between the Debtors and HSG. In re WorldCom, Inc., 308 B.R. 157 (Bankr.S.D.N.Y.2004).

On August 4, 1998, HSG and WorldCom Technologies, Inc. ("WorldCom Technologies") entered into a representation agreement (the "Unamended Representation Agreement") that appointed HSG as an authorized sales representative of World-Corn Technologies to procure orders for telecommunications services ("Services") provided by WorldCom Technologies. Pursuant to the Unamended Representation. Agreement, "Services" is defined as the Services that WorldCom Technologies offers and provides to the customers (the "Customer" or "Customers"), identified in Exhibit A to the Unamended Representation Agreement.

In accordance with the Unamended Representation Agreement, WorldCom Technologies would pay HSG commissions based upon a percentage of the amount that WorldCom Technologies billed to the Customers procured by HSG (the "Residual Commissions"). The Residual Commissions were due and payable, pursuant to the terms of the Representation Agreement, forty-five (45) days from the end of the month in which the . Customers received their bills for the Services provided by WorldCom Technologies.

The Unamended Representation Agreement between HSG and WorldCom Technologies was exclusive. (Tr. 1 at 49.) Pursuant to the Unamended Representation Agreement, HSG was not permitted to offer the telecommunications services of any other vendor except for WorldCom Technologies. (Tr. 1 at 50.) The Unamended Representation Agreement was subsequently amended on numerous occasions, with the last approved amendment being entitled the "Sixth Amendment to Representation Agreement" dated November 1, 2001 (the Unamended Representation Agreement and subsequent amendments thereto are hereinafter referred to collectively as the' Representation Agreement").4 Within the second amendment to the Representation Agreement, MCI WorldCom Communications, Inc., an indirect subsidiary of WorldCom, and all of its United States affiliates ("MCI World-Corn") became a named party to the Representation Agreement, replacing World-Com Technologies.

As permitted under the Representation Agreement, HSG sent a letter to MCI WorldCom on June 28, 2002, seeking to

Page 705

terminate the Representation Agreement (the "Termination Letter"). HSG terminated the Representation Agreement because of its desire to become a nonexclusive agent. (Tr. 1 at 52.)

On July 21, 2002 (the "Filing Date"), and continuing thereafter, WorldCom and certain of its direct and indirect domestic subsidiaries, including MCI WorldCom, filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Court approved the Debtors' Modified Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code on October 31, 2003 (the "Reorganization Plan"). The Reorganization Plan became effective April 20, 2004. The Debtors, renamed MCI, Inc., subsequently merged with Verizon Communications, Inc., on January 6, 2006. 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.

By letter, dated August 6, 2002 (the "August Letter"), MCI WorldCom accepted HSG's termination of the Representation Agreement effective July 28, 2002.5 The Debtors contend that the decision to accept HSG's termination of the Representation Agreement was triggered by HSG's solicitation of Customers in July 2002. (Tr. 2 at 38-40, 74.) However, Ray Ahern, MCI WorldCom's Director for Business Operations in the Art Channel Department, testified at the hearing that he never saw any written documentation or electronic communication to substantiate the allegations that HSG was soliciting the Customers. (Tr. 2 at 73-75.) The August Letter also provided, inter alia, that HSG was required to comply with the provisions of section 8.1 of the Representation Agreement.

Section 8.1 of the Representation Agreement states as follows

For as long as WorldCom pays Representative commissions in accordance with Exhibit B, Representative agrees that Representative will not contact any Customers or WorldCom Group customers procured pursuant to this Agreement or any other Agreement with the WorldCom Group for the purpose of inducing them to switch to another provider of any service which competes with the Services. Representative warrants that Representative's agreements with Representative's agents and distributors presently include, and shall continue to include, the non-solicitation and noncompetition covenants contained in this Section 8.1 and shall be enforceable against such agents and distributors to the same extent that this Section 8.1 is enforceable against Representative.

According to the Debtors, the August Letter referenced Section 8.1 of the Representation Agreement because it was MCI WorldCom's understanding that this section was violated by HSG. (Tr. 2 at 40.)

On August 2, 2002, the Debtors mass mailed a memorandum ("Memorandum") to agents who had recently received commissions. (Tr. 2 at 42-44.) The Memorandum

Page 706

provided that after July 22, 2002, monies earned by an agent under their respective agreements with the Debtors would be paid according to the terms and conditions in the respective representation agreements. The Memorandum also indicated that the Debtors were prohibited from paying any amounts due for pre-petition commissions. On August 5, 2002, WorldCom posted a letter ("Website Letter") on a website that was accessible by active representative agents. (Tr. 2 at 44-45.) The Website Letter also served as a reminder to the agents that they were "required by federal law to abide by all terms and conditions of your existing Representation Agreement."

As of the Filing Date, MCI WorldCom provided services to approximately 169,000 Customers. As of the Filing Date, HSG's monthly Residual Commissions totaled approximately $200,000.00 and were entirely based upon...

To continue reading

Request your trial
6 practice notes
  • Ames Dep't Stores, Inc. v. Lumbermens Mut. Cas. Co. (In re Ames Dep't Stores, Inc.), Case No. 01–42217 (REG) Jointly Administered
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • December 7, 2015
    ...stay is a core proceeding). So are proceedings for contempt. See, e.g. MCI Worldcom Comms., Inc. v. HSG/ATN, Inc. (In re Worldcom, Inc.), 361 B.R. 697, 721 (Bankr.S.D.N.Y.2007) (bankruptcy court has authority under section 105 to hear and determine a request for contempt arising from an all......
  • In re Musicland Holding Corp., No. 07 Civ. 8423.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • May 22, 2008
    ...although it may be connected with and dependent upon the contract." MCI WorldCom Commc'ns, Inc. v. HSG/ATN, Inc. (In re WorldCom. Inc.), 361 B.R. 697, 719 (Bankr.S.D.N.Y. 2007) (citing Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987)......
  • In re Tyson, Bankruptcy No. 03-41900 (ALG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • August 19, 2009
    ...citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); see also In re Worldcom, 361 B.R. 697, 717 (Bankr.S.D.N.Y. 2007) (in breach of contract suit the "law of the jurisdiction with the most significant interest in, or relationship to, the di......
  • Nes Fin. Corp. v. JPMorgan Chase Bank, No. 11 Civ. 3437(VM).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • November 28, 2012
    ...did not breach its contractual obligations, NESF has failed to prove its claim for tortious interference. See, e.g., In re WorldCom, Inc., 361 B.R. 697, 719 (S.D.N.Y.2007); Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190, 193 (1987).D. B......
  • Request a trial to view additional results
6 cases
  • Ames Dep't Stores, Inc. v. Lumbermens Mut. Cas. Co. (In re Ames Dep't Stores, Inc.), Case No. 01–42217 (REG) Jointly Administered
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • December 7, 2015
    ...stay is a core proceeding). So are proceedings for contempt. See, e.g. MCI Worldcom Comms., Inc. v. HSG/ATN, Inc. (In re Worldcom, Inc.), 361 B.R. 697, 721 (Bankr.S.D.N.Y.2007) (bankruptcy court has authority under section 105 to hear and determine a request for contempt arising from an all......
  • In re Musicland Holding Corp., No. 07 Civ. 8423.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • May 22, 2008
    ...although it may be connected with and dependent upon the contract." MCI WorldCom Commc'ns, Inc. v. HSG/ATN, Inc. (In re WorldCom. Inc.), 361 B.R. 697, 719 (Bankr.S.D.N.Y. 2007) (citing Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987)......
  • In re Tyson, Bankruptcy No. 03-41900 (ALG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • August 19, 2009
    ...citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); see also In re Worldcom, 361 B.R. 697, 717 (Bankr.S.D.N.Y. 2007) (in breach of contract suit the "law of the jurisdiction with the most significant interest in, or relationship to, the di......
  • Nes Fin. Corp. v. JPMorgan Chase Bank, No. 11 Civ. 3437(VM).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • November 28, 2012
    ...did not breach its contractual obligations, NESF has failed to prove its claim for tortious interference. See, e.g., In re WorldCom, Inc., 361 B.R. 697, 719 (S.D.N.Y.2007); Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190, 193 (1987).D. B......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT