Prithvi Catalytic, Inc. v. Microsoft Corp. (In re Prithvi Catalytic, Inc.)

Decision Date25 April 2017
Docket NumberAdv. Proc. No. 14–02176–GLT,Case No. 13–23855–GLT
Citation571 B.R. 105
Parties IN RE: PRITHVI CATALYTIC, INC. n/k/a Abilius, Inc., Reorganized Debtor. Prithvi Catalytic, Inc. n/k/a Abilius, Inc., Kyko Global, Inc., and Kyko Global GmbH, Plaintiffs, v. Microsoft Corporation, Collabera, Inc., Beyondsoft Corporation, Ian Olson, and Shannon Krohn, Defendants.
CourtU.S. Bankruptcy Court — Western District of Pennsylvania

Kristi A. Davidson, Buchanan Ingersoll & Rooney PC, New York, NY, Timothy P. Palmer, Buchanan Ingersoll & Rooney PC, Pittsburgh, PA, Jayson M. Macyda, Kyko Global Inc., Canton, MI, Alan J. Peters, Kyko Global Inc., East Amherst, NY, Darian Stanford, Slinde Nelson Stanford, Portland, OR, for Plaintiff.

Jessica Burt, Lawrence J. Del Rossi, Marita Skye Erbeck, Drinker Biddle & Reath LLP, Florham Park, NJ, Wendy E. Lyon, Joseph E. Shickich, Jr., Riddel Williams P.S., Seattle, WA, Christina Orr Magulick, David James Morgan, Gordon & Rees, LLP, James W. Kraus, Pietragallo Gordon Alfano Bosick & Raspanti, LLP, Pittsburgh, PA, Richard J. Parks, Pietragallo Gordon Alfano Bosick & Raspa, Sharon, PA, for Defendants.

Related Dkt. Nos. 259, 262, 268, 276

MEMORANDUM OPINION1

GREGORY L. TADDONIO, UNITED STATES BANKRUPTCY JUDGE

Prithvi Catalytic, Inc. ("PCI")2 was an information technology staffing company that deployed teams of highly skilled employee "resources" to work on projects at jobsites maintained by PCI's customers.3 Prior to its bankruptcy filing, approximately 90 percent of PCI's revenue derived from a single client, Microsoft Corporation.4 By September 2013, PCI was billing Microsoft at a rate of approximately $2 million per month.5

PCI filed a petition for bankruptcy relief on September 10, 2013, after Kyko Global, Inc. obtained a $17 million judgment against it and several of its affiliates. When significant allegations of fraud were leveled against PCI's chief executive officer, Madhavi Vuppalapati ("Madhavi"), the Court appointed, with Kyko's consent, a chief restructuring officer to oversee PCI's operations.6 As PCI's largest creditor, Kyko obtained confirmation of a plan of reorganization whereby it acquired all of the equity interests in PCI. The success of the plan was predicated upon PCI maintaining a sustainable level of work from Microsoft.7

Despite replacing the corporate leadership, re-branding the business as "Abilius, Inc.," and attempting to repair damaged customer relationships, the reorganized debtor was unable to maintain the revenue stream it enjoyed before the bankruptcy filing. Claiming that PCI was no longer reliable, Microsoft chose not to renew most of its PCI contracts when they expired in June 2014, opting instead to send the work to Beyondsoft Corporation and Collabera, Inc.PCI, Kyko, and Kyko Global GmbH (the "Plaintiffs"), initiated this action for damages under ten separate causes of action on the basis that Microsoft, Collabera, and Beyondsoft conspired to steal PCI's profitable contracts and employee "resources" who were subject to non-compete agreements. Plaintiffs also asserted claims against Shannon Krohn and Ian Olson, former PCI executives who left to work for Collabera and are accused of using PCI's proprietary information to transition resources from their old employer to their new one.

The Court is presently confronted with four competing motions for summary judgment. Defendants have separately filed motions seeking summary judgment on each claim asserted against them.8 Meanwhile, Plaintiffs seek partial summary judgment as to two counts alleging violations of the automatic stay and civil contempt.9 Although each party asserts individual arguments, the Court notes that there are no significant inconsistencies in their treatment of the issues. Defendants also presented a joint statement of uncontested facts, and Plaintiffs responded. The Court will therefore address all four motions in this Memorandum Opinion . The Court will follow the organization of the remaining Counts of Plaintiffs' Complaint (1, 2, 3, 5, 6, 8, 9, 10), treating issues raised in the four motions as to each count.

Factual Background10

The origins of this matter date back several years.11 In mid–2011, Kyko's CEO, Kiran Kulkarni, was contacted about the possibility of providing accounts receivable factoring services to Prithvi Information Systems, Ltd. ("PISL"), an affiliate of PCI. As the chairperson of PISL, Madhavi and her brother Satish (together, the "Vuppalapatis"), offered Kyko the ability to purchase PISL's accounts receivable invoices from five distinct customers.12 Under the arrangement, Kyko advanced millions of dollars to PISL based upon the face amount of the invoice, less certain fees, and then possessed the right to collect the full amount of the receivable directly from the customer between 45 and 60 days later.

The entire arrangement was later exposed as a fraudulent scheme. In findings rendered last year by the United States District Court for the Western District of Washington, it was determined that the five customers did not exist and were instead part of an elaborate fabrication concocted by the Vuppalapatis to defraud Kyko:13

The Court finds that the Vuppalapatis are each directly responsible for orchestrating the entirety of the scheme to defraud Kyko. Every action in furtherance of the scheme—false names, false companies, false customers, false accounts receivable, false invoices, false wire transactions totaling millions of dollars—is attributable to the actions of and direction from the Vuppalapatis. ... The Vuppalapatis have demonstrated that they will sign or swear under penalty of perjury to confessions or guarantees with no concern for the underlying truthfulness. ... When confronted with evidence of their fraud, the Vuppalapatis have responded by attempting to perpetuate additional fraud.14

PCI commenced its bankruptcy case shortly after Kyko obtained a judgment against PCI and its affiliates in the amount of $17,568,854.15 PCI is a guarantor of the debt owed by PISL and that guarantee is the foundation of Kyko's claim as a creditor of PCI in this bankruptcy proceeding. PCI does not challenge that the debt arising from this litigation, together with approximately $8 million in unpaid withholding taxes, triggered PCI's bankruptcy.

At the time of its bankruptcy filing, PCI employed approximately 200–250 individuals.16 Most of the employee resources were deployed at Microsoft and performed work on three distinct projects:17 (1) the Windows Test Team Operating Services Group ("OSG"), utilizing approximately 95–105 resources;18 (2) the Sharepoint Online Group ("Sharepoint"), staffed by approximately 28–30 resources;19 and (3) the Customer Services & Support Group ("CSS"), which included a project known as "Mission Control," requiring 30–35 resources.20 Other Microsoft projects employed an additional 18 PCI staffers.

Microsoft's relations with its vendors are governed by a Master Vendor Agreement ("MVA"). The MVA between Microsoft and PCI became effective on May 4, 2011, and had a five-year term. Within the guidelines of the MVA, Microsoft and the vendors execute individual contracts, known as Statements of Work ("SOW") and corresponding Purchase Orders ("PO"), to engage, authorize, and pay vendors to perform services within a particular group or on a particular project. The parties refer to the cumulative SOWs and POs as the "Microsoft Contracts." While the individual SOWs and POS may have had different terms, Plaintiffs acknowledge in their Complaint that all Microsoft Contracts expired on June 30, 2014.21

Following the filing of the bankruptcy petition, there were allegations of complaints made by PCI resources to management personnel at Microsoft regarding PCI, its alleged missed payrolls, and its failure to provide insurance coverage. These are all hotly disputed by the parties and remain open material questions.22 In addition, the Vuppalapatis' shadow loomed over the business, prompting Kyko to seek the appointment of a trustee to prevent a feared dissipation of PCI's assets.23 Kyko eventually agreed to the appointment of David Amorose as the Chief Financial Officer and Treasurer of PCI as a means of providing both stability and transparency to PCI.24 Pursuant to the consent order, Amorose was granted operational authority over PCI's business, controlled all disbursements, and was held accountable for all actions undertaken by PCI during the bankruptcy case.25

Several months into the bankruptcy case, PCI's customer base began to erode. In December 2013, Expedia notified PCI that it was discontinuing its relationship and would not extend any new work to PCI.26 Amorose, in his deposition, attributed the loss to "the association to Madhavi and the fraud charges."27

In December 2013, PCI explored options to transition its business to another supplier.28 PCI employees met with Microsoft regarding the possibility of transferring PCI's existing projects to either Collabera or RGen Solutions.29 At some point between late December 2013 and the first week of January 2014, Olson (while still employed by PCI) exchanged financial data and other information related to the resources deployed on the Sharepoint and OSG projects with Krohn, who was now employed by Collabera.30 These discussions culminated in a "Consultant Referral Agreement," whereby PCI agreed to transition resources to Collabera in exchange for a referral fee.31 The agreement was subsequently terminated when, according to PCI, Madhavi perceived a conflict of interest.32

On January 17, 2014, Microsoft informed PCI that it was terminating 27 purchase orders within the CSS project for cause/convenience.33 PCI responded by instituting an adversary proceeding against Microsoft, alleging a violation of the automatic stay and breach of an executory contract that had not been rejected.34 A week later, Microsoft and PCI resolved the matter in a stipulation whereby Microsoft agreed to revoke the termination letter in exchange for PCI's...

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